Does Ranpak Holdings (NYSE:PACK) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 can see that Ranpak Holdings Corp. (NYSE:PACK) 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Ranpak Holdings

How Much Debt Does Ranpak Holdings Carry?

The image below, which you can click on for greater detail, shows that Ranpak Holdings had debt of US$399.1m at the end of March 2022, a reduction from US$437.8m over a year. On the flip side, it has US$80.5m in cash leading to net debt of about US$318.6m.

How Strong Is Ranpak Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Ranpak Holdings had liabilities of US$67.7m due within 12 months and liabilities of US$501.2m due beyond that. Offsetting these obligations, it had cash of US$80.5m as well as receivables valued at US$53.6m due within 12 months. So its liabilities total US$434.8m more than the combination of its cash and short-term receivables.

Ranpak Holdings has a market capitalization of US$1.01b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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 Ranpak Holdings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Ranpak Holdings reported revenue of US$379m, which is a gain of 17%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Ranpak Holdings had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$7.5m. 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. Another cause for caution is that is bled US$23m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. 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 example - Ranpak Holdings has 2 warning signs we think you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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