Health Check: How Prudently Does Carnival Corporation & (NYSE:CCL) Use Debt?

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.' 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 Carnival Corporation & plc (NYSE:CCL) makes use of 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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Carnival Corporation &

What Is Carnival Corporation &'s Debt?

As you can see below, Carnival Corporation & had US$34.5b of debt, at November 2022, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has US$4.03b in cash leading to net debt of about US$30.5b.

How Healthy Is Carnival Corporation &'s Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Carnival Corporation & had liabilities of US$10.6b due within 12 months and liabilities of US$34.0b due beyond that. Offsetting this, it had US$4.03b in cash and US$395.0m in receivables that were due within 12 months. So it has liabilities totalling US$40.2b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the US$13.7b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Carnival Corporation & would probably need a major re-capitalization if its creditors were to demand repayment. 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 Carnival Corporation &'s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Carnival Corporation & wasn't profitable at an EBIT level, but managed to grow its revenue by 538%, to US$12b. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

Caveat Emptor

Despite the top line growth, Carnival Corporation & still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$3.9b. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely, given it is low on liquid assets, and burned through US$6.2b in the last year. So we think this stock is risky, like walking through a dirty dog park with a mask on. 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 - Carnival Corporation & has 2 warning signs we think 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.

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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.