Health Check: How Prudently Does LanzaTech Global (NASDAQ:LNZA) 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. Importantly, LanzaTech Global, Inc. (NASDAQ:LNZA) does carry debt. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for LanzaTech Global

What Is LanzaTech Global's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 LanzaTech Global had US$61.6m of debt, an increase on none, over one year. However, it does have US$86.9m in cash offsetting this, leading to net cash of US$25.3m.

How Healthy Is LanzaTech Global's Balance Sheet?

According to the last reported balance sheet, LanzaTech Global had liabilities of US$46.9m due within 12 months, and liabilities of US$155.7m due beyond 12 months. On the other hand, it had cash of US$86.9m and US$33.8m worth of receivables due within a year. So it has liabilities totalling US$82.0m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since LanzaTech Global has a market capitalization of US$367.9m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, LanzaTech Global 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 it is future earnings, more than anything, that will determine LanzaTech Global's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year LanzaTech Global wasn't profitable at an EBIT level, but managed to grow its revenue by 8.0%, to US$58m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is LanzaTech Global?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months LanzaTech Global lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$90m of cash and made a loss of US$129m. With only US$25.3m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with LanzaTech Global (at least 1 which is significant) , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.