Does Glatfelter (NYSE:GLT) 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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Glatfelter Corporation (NYSE:GLT) does carry debt. But is this debt a concern to shareholders?

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Glatfelter

What Is Glatfelter's Net Debt?

As you can see below, at the end of September 2022, Glatfelter had US$818.8m of debt, up from US$462.2m a year ago. Click the image for more detail. However, because it has a cash reserve of US$95.3m, its net debt is less, at about US$723.5m.

A Look At Glatfelter's Liabilities

Zooming in on the latest balance sheet data, we can see that Glatfelter had liabilities of US$356.0m due within 12 months and liabilities of US$960.1m due beyond that. Offsetting this, it had US$95.3m in cash and US$192.4m in receivables that were due within 12 months. So its liabilities total US$1.03b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the US$155.4m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Glatfelter would likely require a major re-capitalisation if it had to pay its creditors today. 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 Glatfelter 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.

In the last year Glatfelter wasn't profitable at an EBIT level, but managed to grow its revenue by 47%, to US$1.5b. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, Glatfelter still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$559k at the EBIT level. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Sure, the company might have a nice story about how they are going on to a brighter future. But the fact is that it incinerated US$74m of cash in the last twelve months, and has precious few liquid assets in comparison to its liabilities. So we consider this a high risk stock, and we're worried its share price could sink faster than than a dingy with a great white shark attacking it. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for Glatfelter that you should be aware of before investing here.

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.