Is XpresSpa Group (NASDAQ:XSPA) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that XpresSpa Group, Inc. (NASDAQ:XSPA) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for XpresSpa Group

What Is XpresSpa Group's Debt?

The chart below, which you can click on for greater detail, shows that XpresSpa Group had US$5.65m in debt in March 2021; about the same as the year before. However, it does have US$102.6m in cash offsetting this, leading to net cash of US$97.0m.

How Strong Is XpresSpa Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that XpresSpa Group had liabilities of US$13.8m due within 12 months and liabilities of US$8.09m due beyond that. Offsetting this, it had US$102.6m in cash and US$3.02m in receivables that were due within 12 months. So it actually has US$83.7m more liquid assets than total liabilities.

This surplus strongly suggests that XpresSpa Group has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, XpresSpa Group boasts net cash, so it's fair to say it does not have a heavy debt load! 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 XpresSpa 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.

Over 12 months, XpresSpa Group made a loss at the EBIT level, and saw its revenue drop to US$9.2m, which is a fall of 79%. To be frank that doesn't bode well.

So How Risky Is XpresSpa Group?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months XpresSpa Group lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$30m and booked a US$82m accounting loss. Given it only has net cash of US$97.0m, the company may need to raise more capital if it doesn't reach break-even soon. 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. 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. To that end, you should learn about the 3 warning signs we've spotted with XpresSpa Group (including 1 which doesn't sit too well with us) .

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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