Does Stabilis Solutions (NASDAQ:SLNG) Have A Healthy Balance Sheet?

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 Stabilis Solutions, Inc. (NASDAQ:SLNG) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Stabilis Solutions

What Is Stabilis Solutions's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2022 Stabilis Solutions had US$12.7m of debt, an increase on US$11.7m, over one year. However, it also had US$11.4m in cash, and so its net debt is US$1.36m.

A Look At Stabilis Solutions' Liabilities

According to the last reported balance sheet, Stabilis Solutions had liabilities of US$25.4m due within 12 months, and liabilities of US$10.1m due beyond 12 months. Offsetting this, it had US$11.4m in cash and US$10.4m in receivables that were due within 12 months. So its liabilities total US$13.8m more than the combination of its cash and short-term receivables.

Since publicly traded Stabilis Solutions shares are worth a total of US$85.5m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. There's no doubt that we learn most about debt from the balance sheet. But it is Stabilis Solutions's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Stabilis Solutions reported revenue of US$98m, which is a gain of 58%, 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.

Caveat Emptor

Despite the top line growth, Stabilis Solutions still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$4.4m 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. For example, we would not want to see a repeat of last year's loss of US$3.9m. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Stabilis Solutions (of which 1 is a bit unpleasant!) you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.