Health Check: How Prudently Does Loop Industries (NASDAQ:LOOP) Use 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.' 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. We can see that Loop Industries, Inc. (NASDAQ:LOOP) does use debt in its business. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Loop Industries

How Much Debt Does Loop Industries Carry?

As you can see below, Loop Industries had US$3.31m of debt, at May 2023, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$22.0m in cash offsetting this, leading to net cash of US$18.7m.

How Healthy Is Loop Industries' Balance Sheet?

According to the last reported balance sheet, Loop Industries had liabilities of US$5.04m due within 12 months, and liabilities of US$3.10m due beyond 12 months. Offsetting this, it had US$22.0m in cash and US$1.16m in receivables that were due within 12 months. So it actually has US$15.0m more liquid assets than total liabilities.

This surplus suggests that Loop Industries has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Loop 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 ultimately the future profitability of the business will decide if Loop Industries can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

It seems likely shareholders hope that Loop Industries can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.

So How Risky Is Loop Industries?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Loop Industries had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$32m of cash and made a loss of US$10m. While this does make the company a bit risky, it's important to remember it has net cash of US$18.7m. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for Loop Industries (1 is potentially serious) 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.