Forward Industries (NASDAQ:FORD) Is Carrying A Fair Bit Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Forward Industries, Inc. (NASDAQ:FORD) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Forward Industries

What Is Forward Industries's Debt?

As you can see below, Forward Industries had US$1.63m of debt at June 2021, down from US$3.96m a year prior. However, because it has a cash reserve of US$1.60m, its net debt is less, at about US$24.5k.

How Healthy Is Forward Industries' Balance Sheet?

According to the last reported balance sheet, Forward Industries had liabilities of US$6.13m due within 12 months, and liabilities of US$5.31m due beyond 12 months. Offsetting these obligations, it had cash of US$1.60m as well as receivables valued at US$7.68m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$2.15m.

Of course, Forward Industries has a market capitalization of US$22.4m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Carrying virtually no net debt, Forward Industries has a very light debt load indeed. When analysing debt levels, the balance sheet is the obvious place to start. But it is Forward Industries's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Forward Industries reported revenue of US$37m, which is a gain of 4.8%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Forward Industries had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$607k. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Surprisingly, we note that it actually reported positive free cash flow of US$85k and a profit of US$501k. So if we focus on those metrics there seems to be a chance the company will manage its debt without much trouble. 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. Be aware that Forward Industries is showing 4 warning signs in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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.

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