- United States
- /
- Aerospace & Defense
- /
- NYSE:EVEX
Health Check: How Prudently Does Eve Holding (NYSE:EVEX) Use Debt?
Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Eve Holding, Inc. (NYSE:EVEX) does use debt in its business. But is this debt a concern to shareholders?
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
View our latest analysis for Eve Holding
What Is Eve Holding's Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2024 Eve Holding had US$68.3m of debt, an increase on US$11.3m, over one year. But it also has US$279.8m in cash to offset that, meaning it has US$211.5m net cash.
How Strong Is Eve Holding's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Eve Holding had liabilities of US$54.8m due within 12 months and liabilities of US$71.1m due beyond that. Offsetting these obligations, it had cash of US$279.8m as well as receivables valued at US$19.0k due within 12 months. So it actually has US$154.0m more liquid assets than total liabilities.
It's good to see that Eve Holding has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Eve Holding boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Eve Holding can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Given it has no significant operating revenue at the moment, shareholders will be hoping Eve Holding can make progress and gain better traction for the business, before it runs low on cash.
So How Risky Is Eve Holding?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Eve Holding had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$126m of cash and made a loss of US$137m. But at least it has US$211.5m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Eve Holding (at least 1 which is potentially serious) , and understanding them should be part of your investment process.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
Valuation is complex, but we're here to simplify it.
Discover if Eve Holding might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
About NYSE:EVEX
Excellent balance sheet low.