Is Gulf Island Fabrication (NASDAQ:GIFI) Weighed On By Its Debt Load?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Gulf Island Fabrication, Inc. (NASDAQ:GIFI) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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.

Check out our latest analysis for Gulf Island Fabrication

How Much Debt Does Gulf Island Fabrication Carry?

As you can see below, Gulf Island Fabrication had US$2.20m of debt at June 2022, down from US$10.0m a year prior. But on the other hand it also has US$39.1m in cash, leading to a US$36.9m net cash position.

A Look At Gulf Island Fabrication's Liabilities

According to the last reported balance sheet, Gulf Island Fabrication had liabilities of US$31.4m due within 12 months, and liabilities of US$1.30m due beyond 12 months. Offsetting these obligations, it had cash of US$39.1m as well as receivables valued at US$32.0m due within 12 months. So it can boast US$38.5m more liquid assets than total liabilities.

This surplus liquidity suggests that Gulf Island Fabrication's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Gulf Island Fabrication boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Gulf Island Fabrication 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, Gulf Island Fabrication reported revenue of US$110m, which is a gain of 14%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Gulf Island Fabrication?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Gulf Island Fabrication had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$28m of cash and made a loss of US$5.3m. While this does make the company a bit risky, it's important to remember it has net cash of US$36.9m. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Gulf Island Fabrication is showing 2 warning signs in our investment analysis , you should know about...

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.