Is Excelerate Energy (NYSE:EE) A Risky Investment?

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.' 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. As with many other companies Excelerate Energy, Inc. (NYSE:EE) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Excelerate Energy

What Is Excelerate Energy's Net Debt?

As you can see below, Excelerate Energy had US$520.5m of debt at September 2024, down from US$623.1m a year prior. But it also has US$608.4m in cash to offset that, meaning it has US$87.9m net cash.

How Healthy Is Excelerate Energy's Balance Sheet?

According to the last reported balance sheet, Excelerate Energy had liabilities of US$185.3m due within 12 months, and liabilities of US$796.5m due beyond 12 months. On the other hand, it had cash of US$608.4m and US$139.0m worth of receivables due within a year. So its liabilities total US$234.3m more than the combination of its cash and short-term receivables.

Of course, Excelerate Energy has a market capitalization of US$3.29b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Excelerate Energy boasts net cash, so it's fair to say it does not have a heavy debt load!

Unfortunately, Excelerate Energy's EBIT flopped 15% over the last four quarters. If that sort of decline is not arrested, then the managing its debt will be harder than selling broccoli flavoured ice-cream for a premium. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Excelerate Energy's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Excelerate Energy may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Looking at the most recent three years, Excelerate Energy recorded free cash flow of 30% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Excelerate Energy has US$87.9m in net cash. So although we see some areas for improvement, we're not too worried about Excelerate Energy's balance sheet. Over time, share prices tend to follow earnings per share, so if you're interested in Excelerate Energy, you may well want to click here to check an interactive graph of its earnings per share history.

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.