Is Eve Holding (NYSE:EVEX) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Eve Holding, Inc. (NYSE:EVEX) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Eve Holding

How Much Debt Does Eve Holding Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Eve Holding had US$40.0m of debt, an increase on none, over one year. However, its balance sheet shows it holds US$138.3m in cash, so it actually has US$98.3m net cash.

How Healthy Is Eve Holding's Balance Sheet?

We can see from the most recent balance sheet that Eve Holding had liabilities of US$45.2m falling due within a year, and liabilities of US$42.2m due beyond that. On the other hand, it had cash of US$138.3m and US$84.4m worth of receivables due within a year. So it actually has US$135.2m more liquid assets than total liabilities.

This short term liquidity is a sign that Eve Holding could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Eve Holding has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Eve Holding can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

It seems likely shareholders hope that Eve Holding can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.

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. And over the same period it saw negative free cash outflow of US$111m and booked a US$127m accounting loss. However, it has net cash of US$98.3m, so it has a bit of time before it will need more capital. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with Eve Holding (at least 2 which are significant) , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.