Health Check: How Prudently Does Clean Energy Fuels (NASDAQ:CLNE) Use Debt?

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. We note that Clean Energy Fuels Corp. (NASDAQ:CLNE) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Clean Energy Fuels

How Much Debt Does Clean Energy Fuels Carry?

You can click the graphic below for the historical numbers, but it shows that Clean Energy Fuels had US$32.4m of debt in June 2022, down from US$38.3m, one year before. However, it does have US$187.5m in cash offsetting this, leading to net cash of US$155.1m.

How Healthy Is Clean Energy Fuels' Balance Sheet?

We can see from the most recent balance sheet that Clean Energy Fuels had liabilities of US$126.0m falling due within a year, and liabilities of US$78.7m due beyond that. Offsetting this, it had US$187.5m in cash and US$90.4m in receivables that were due within 12 months. So it actually has US$73.1m more liquid assets than total liabilities.

This surplus suggests that Clean Energy Fuels has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Clean Energy Fuels boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. 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're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Clean Energy Fuels reported revenue of US$359m, which is a gain of 61%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Clean Energy Fuels?

Although Clean Energy Fuels had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$17m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Keeping in mind its 61% revenue growth over the last year, we think there's a decent chance the company is on track. There's no doubt fast top line growth can cure all manner of ills, for a stock. 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 - Clean Energy Fuels has 1 warning sign 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.