Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Green Plains Inc. (NASDAQ:GPRE) does have debt on its balance sheet. But is this debt a concern to shareholders?
When Is Debt Dangerous?
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 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for Green Plains
What Is Green Plains's Debt?
You can click the graphic below for the historical numbers, but it shows that Green Plains had US$610.2m of debt in June 2024, down from US$742.5m, one year before. However, it also had US$195.6m in cash, and so its net debt is US$414.6m.
A Look At Green Plains' Liabilities
Zooming in on the latest balance sheet data, we can see that Green Plains had liabilities of US$328.5m due within 12 months and liabilities of US$554.3m due beyond that. On the other hand, it had cash of US$195.6m and US$100.1m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$587.0m.
This deficit is considerable relative to its market capitalization of US$916.2m, so it does suggest shareholders should keep an eye on Green Plains' use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Green Plains can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Green Plains made a loss at the EBIT level, and saw its revenue drop to US$2.8b, which is a fall of 21%. To be frank that doesn't bode well.
Caveat Emptor
While Green Plains's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost US$27m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of US$46m into a profit. In the meantime, we consider the stock very risky. 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. To that end, you should be aware of the 1 warning sign we've spotted with Green Plains .
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.
About NasdaqGS:GPRE
Green Plains
Produces low-carbon fuels in the United States and internationally.
Undervalued with excellent balance sheet.
