Alkaline Water (NASDAQ:WTER) 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.' 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 The Alkaline Water Company Inc. (NASDAQ:WTER) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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. 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.

Check out our latest analysis for Alkaline Water

How Much Debt Does Alkaline Water Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2021 Alkaline Water had US$7.33m of debt, an increase on US$5.12m, over one year. But on the other hand it also has US$10.4m in cash, leading to a US$3.09m net cash position.

How Strong Is Alkaline Water's Balance Sheet?

According to the last reported balance sheet, Alkaline Water had liabilities of US$16.9m due within 12 months, and liabilities of US$193.8k due beyond 12 months. Offsetting this, it had US$10.4m in cash and US$11.0m in receivables that were due within 12 months. So it actually has US$4.30m more liquid assets than total liabilities.

This short term liquidity is a sign that Alkaline Water could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Alkaline Water 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 ultimately the future profitability of the business will decide if Alkaline Water can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Alkaline Water reported revenue of US$52m, which is a gain of 26%, 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.

So How Risky Is Alkaline Water?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Alkaline Water lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$26m and booked a US$27m accounting loss. Given it only has net cash of US$3.09m, the company may need to raise more capital if it doesn't reach break-even soon. Alkaline Water's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. For instance, we've identified 5 warning signs for Alkaline Water (2 are a bit concerning) you should be aware of.

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.