Would RiceBran Technologies (NASDAQ:RIBT) Be Better Off With Less Debt?

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. We note that RiceBran Technologies (NASDAQ:RIBT) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for RiceBran Technologies

How Much Debt Does RiceBran Technologies Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 RiceBran Technologies had US$4.65m of debt, an increase on US$1.29m, over one year. However, it does have US$3.89m in cash offsetting this, leading to net debt of about US$763.0k.

A Look At RiceBran Technologies' Liabilities

We can see from the most recent balance sheet that RiceBran Technologies had liabilities of US$5.86m falling due within a year, and liabilities of US$4.80m due beyond that. Offsetting this, it had US$3.89m in cash and US$2.45m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$4.32m.

Given RiceBran Technologies has a market capitalization of US$54.1m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Carrying virtually no net debt, RiceBran Technologies has a very light debt load indeed. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine RiceBran Technologies'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, RiceBran Technologies reported revenue of US$25m, which is a gain of 12%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, RiceBran Technologies had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable US$12m 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$12m of cash over the last year. So suffice it to say we consider the stock very 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. Case in point: We've spotted 5 warning signs for RiceBran Technologies you should be aware of, and 1 of them is a bit unpleasant.

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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