New Fortress Energy (NASDAQ:NFE) Is Carrying A Fair Bit Of Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 can see that New Fortress Energy Inc. (NASDAQ:NFE) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for New Fortress Energy

How Much Debt Does New Fortress Energy Carry?

The image below, which you can click on for greater detail, shows that at March 2021 New Fortress Energy had debt of US$1.24b, up from US$945.9m in one year. However, because it has a cash reserve of US$360.1m, its net debt is less, at about US$880.4m.

How Healthy Is New Fortress Energy's Balance Sheet?

We can see from the most recent balance sheet that New Fortress Energy had liabilities of US$195.9m falling due within a year, and liabilities of US$1.35b due beyond that. Offsetting these obligations, it had cash of US$360.1m as well as receivables valued at US$104.8m due within 12 months. So its liabilities total US$1.08b more than the combination of its cash and short-term receivables.

Of course, New Fortress Energy has a market capitalization of US$8.25b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 New Fortress Energy'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.

In the last year New Fortress Energy wasn't profitable at an EBIT level, but managed to grow its revenue by 124%, to US$523m. So its pretty obvious shareholders are hoping for more growth!

Caveat Emptor

While we can certainly appreciate New Fortress Energy's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost US$18m 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$368m of cash over the last year. So to be blunt we think it is 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for New Fortress Energy (of which 1 shouldn't be ignored!) you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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