Is Beachbody Company (NYSE:BODI) Using Debt Sensibly?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that The Beachbody Company, Inc. (NYSE:BODI) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Beachbody Company

What Is Beachbody Company's Net Debt?

As you can see below, Beachbody Company had US$21.7m of debt at September 2024, down from US$29.0m a year prior. However, its balance sheet shows it holds US$34.1m in cash, so it actually has US$12.4m net cash.

A Look At Beachbody Company's Liabilities

According to the last reported balance sheet, Beachbody Company had liabilities of US$148.6m due within 12 months, and liabilities of US$18.5m due beyond 12 months. On the other hand, it had cash of US$34.1m and US$1.69m worth of receivables due within a year. So it has liabilities totalling US$131.3m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the US$39.5m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Beachbody Company would likely require a major re-capitalisation if it had to pay its creditors today. Beachbody Company boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Beachbody Company 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, Beachbody Company made a loss at the EBIT level, and saw its revenue drop to US$451m, which is a fall of 19%. That's not what we would hope to see.

So How Risky Is Beachbody Company?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Beachbody Company lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$3.7m and booked a US$102m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$12.4m. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. For instance, we've identified 2 warning signs for Beachbody Company that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.