Would Blue Apron Holdings (NYSE:APRN) Be Better Off With Less 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. Importantly, Blue Apron Holdings, Inc. (NYSE:APRN) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Blue Apron Holdings

What Is Blue Apron Holdings's Net Debt?

As you can see below, at the end of September 2021, Blue Apron Holdings had US$65.9m of debt, up from US$43.2m a year ago. Click the image for more detail. However, it also had US$35.3m in cash, and so its net debt is US$30.6m.

A Look At Blue Apron Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that Blue Apron Holdings had liabilities of US$77.4m due within 12 months and liabilities of US$76.7m due beyond that. Offsetting these obligations, it had cash of US$35.3m as well as receivables valued at US$146.0k due within 12 months. So its liabilities total US$118.6m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Blue Apron Holdings has a market capitalization of US$199.4m, 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. 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 Blue Apron Holdings 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.

Over 12 months, Blue Apron Holdings reported revenue of US$479m, which is a gain of 9.0%, 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, Blue Apron Holdings had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$55m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$34m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example Blue Apron Holdings has 4 warning signs (and 1 which is a bit unpleasant) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.