Does Clean Energy Fuels (NASDAQ:CLNE) Have A Healthy Balance Sheet?

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, Clean Energy Fuels Corp. (NASDAQ:CLNE) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

See our latest analysis for Clean Energy Fuels

What Is Clean Energy Fuels's Net Debt?

As you can see below, at the end of March 2024, Clean Energy Fuels had US$262.0m of debt, up from US$144.9m a year ago. Click the image for more detail. On the flip side, it has US$248.9m in cash leading to net debt of about US$13.1m.

A Look At Clean Energy Fuels' Liabilities

We can see from the most recent balance sheet that Clean Energy Fuels had liabilities of US$143.1m falling due within a year, and liabilities of US$363.4m due beyond that. Offsetting these obligations, it had cash of US$248.9m as well as receivables valued at US$115.8m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$141.9m.

Clean Energy Fuels has a market capitalization of US$558.2m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Clean Energy Fuels'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.

Over 12 months, Clean Energy Fuels made a loss at the EBIT level, and saw its revenue drop to US$397m, which is a fall of 15%. We would much prefer see growth.

Caveat Emptor

While Clean Energy Fuels's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at US$50m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$47m in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with Clean Energy Fuels , and understanding them should be part of your investment process.

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.

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