Does Nutriband (NASDAQ:NTRB) Have A Healthy Balance Sheet?

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.' 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. As with many other companies Nutriband Inc. (NASDAQ:NTRB) makes use of debt. 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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Nutriband

How Much Debt Does Nutriband Carry?

As you can see below, at the end of July 2021, Nutriband had US$1.70m of debt, up from US$139.4k a year ago. Click the image for more detail. On the flip side, it has US$304.3k in cash leading to net debt of about US$1.39m.

How Healthy Is Nutriband's Balance Sheet?

The latest balance sheet data shows that Nutriband had liabilities of US$2.66m due within a year, and liabilities of US$191.9k falling due after that. Offsetting these obligations, it had cash of US$304.3k as well as receivables valued at US$13.8k due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$2.53m.

Given Nutriband has a market capitalization of US$40.1m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 Nutriband'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.

In the last year Nutriband wasn't profitable at an EBIT level, but managed to grow its revenue by 353%, to US$1.4m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

Caveat Emptor

While we can certainly appreciate Nutriband's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost US$3.0m 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. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$401k of cash over the last year. So to be blunt we think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 6 warning signs we've spotted with Nutriband (including 2 which are a bit unpleasant) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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.

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