GEN Restaurant Group (NASDAQ:GENK) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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, GEN Restaurant Group, Inc. (NASDAQ:GENK) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does GEN Restaurant Group Carry?

You can click the graphic below for the historical numbers, but it shows that GEN Restaurant Group had US$6.45m of debt in March 2025, down from US$10.7m, one year before. However, its balance sheet shows it holds US$15.4m in cash, so it actually has US$8.91m net cash.

A Look At GEN Restaurant Group's Liabilities

We can see from the most recent balance sheet that GEN Restaurant Group had liabilities of US$35.0m falling due within a year, and liabilities of US$154.6m due beyond that. Offsetting this, it had US$15.4m in cash and US$1.22m in receivables that were due within 12 months. So it has liabilities totalling US$173.0m more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of US$130.5m, we think shareholders really should watch GEN Restaurant Group's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. Given that GEN Restaurant Group has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine GEN Restaurant Group'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.

Check out our latest analysis for GEN Restaurant Group

In the last year GEN Restaurant Group wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to US$215m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is GEN Restaurant Group?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that GEN Restaurant Group had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$10m of cash and made a loss of US$205k. With only US$8.91m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. Case in point: We've spotted 2 warning signs for GEN Restaurant Group you should be aware of, and 1 of them shouldn't be ignored.

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.

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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.