Does Limoneira (NASDAQ:LMNR) Have A Healthy Balance Sheet?

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.' 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. Importantly, Limoneira Company (NASDAQ:LMNR) does carry debt. But the real question is whether this debt is making the company risky.

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. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Limoneira

What Is Limoneira's Debt?

You can click the graphic below for the historical numbers, but it shows that as of April 2024 Limoneira had US$60.1m of debt, an increase on US$41.3m, over one year. However, because it has a cash reserve of US$1.40m, its net debt is less, at about US$58.7m.

A Look At Limoneira's Liabilities

Zooming in on the latest balance sheet data, we can see that Limoneira had liabilities of US$37.5m due within 12 months and liabilities of US$84.9m due beyond that. Offsetting this, it had US$1.40m in cash and US$25.6m in receivables that were due within 12 months. So it has liabilities totalling US$95.4m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Limoneira is worth US$409.4m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. 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 Limoneira'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.

Over 12 months, Limoneira made a loss at the EBIT level, and saw its revenue drop to US$178m, which is a fall of 3.4%. We would much prefer see growth.

Caveat Emptor

Importantly, Limoneira had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$22m 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$19m of cash over the last year. So to be blunt we think it is risky. For riskier companies like Limoneira I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.