Is Clean Energy Fuels (NASDAQ:CLNE) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 Clean Energy Fuels Corp. (NASDAQ:CLNE) does use debt in its business. But should shareholders be worried about its use of debt?

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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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Clean Energy Fuels's Debt?

As you can see below, Clean Energy Fuels had US$265.4m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. However, it also had US$217.5m in cash, and so its net debt is US$47.9m.

How Strong Is Clean Energy Fuels' Balance Sheet?

According to the last reported balance sheet, Clean Energy Fuels had liabilities of US$154.7m due within 12 months, and liabilities of US$369.6m due beyond 12 months. On the other hand, it had cash of US$217.5m and US$127.7m worth of receivables due within a year. So it has liabilities totalling US$179.2m more than its cash and near-term receivables, combined.

Clean Energy Fuels has a market capitalization of US$371.2m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Clean Energy Fuels 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.

View our latest analysis for Clean Energy Fuels

In the last year Clean Energy Fuels had a loss before interest and tax, and actually shrunk its revenue by 2.2%, to US$416m. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Clean Energy Fuels produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$28m. 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$15m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for Clean Energy Fuels 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.

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