NACCO Industries (NYSE:NC) Has Debt But No Earnings; Should You Worry?

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.' 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. Importantly, NACCO Industries, Inc. (NYSE:NC) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for NACCO Industries

How Much Debt Does NACCO Industries Carry?

You can click the graphic below for the historical numbers, but it shows that NACCO Industries had US$18.4m of debt in June 2022, down from US$32.0m, one year before. However, its balance sheet shows it holds US$97.1m in cash, so it actually has US$78.7m net cash.

How Healthy Is NACCO Industries' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that NACCO Industries had liabilities of US$43.6m due within 12 months and liabilities of US$101.1m due beyond that. Offsetting these obligations, it had cash of US$97.1m as well as receivables valued at US$42.5m due within 12 months. So it has liabilities totalling US$5.14m more than its cash and near-term receivables, combined.

Having regard to NACCO Industries' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$347.1m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, NACCO Industries boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since NACCO Industries will need earnings to service that debt. 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.

In the last year NACCO Industries wasn't profitable at an EBIT level, but managed to grow its revenue by 48%, to US$217m. With any luck the company will be able to grow its way to profitability.

So How Risky Is NACCO Industries?

While NACCO Industries lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of US$82m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. The good news for NACCO Industries shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - NACCO Industries has 3 warning signs we think you should be aware of.

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.