Is Nutriband (NASDAQ:NTRB) Weighed On By Its Debt Load?

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.' 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. We note that Nutriband Inc. (NASDAQ:NTRB) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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.

View our latest analysis for Nutriband

How Much Debt Does Nutriband Carry?

The image below, which you can click on for greater detail, shows that at July 2023 Nutriband had debt of US$2.22m, up from US$133.4k in one year. However, its balance sheet shows it holds US$2.33m in cash, so it actually has US$117.6k net cash.

How Healthy Is Nutriband's Balance Sheet?

According to the last reported balance sheet, Nutriband had liabilities of US$874.1k due within 12 months, and liabilities of US$2.11m due beyond 12 months. Offsetting this, it had US$2.33m in cash and US$223.5k in receivables that were due within 12 months. So it has liabilities totalling US$423.9k more than its cash and near-term receivables, combined.

Having regard to Nutriband's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$22.3m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Nutriband also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Nutriband's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Nutriband reported revenue of US$2.3m, which is a gain of 33%, 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 Nutriband?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Nutriband had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$3.1m of cash and made a loss of US$4.6m. Given it only has net cash of US$117.6k, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Nutriband may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for Nutriband (of which 3 are a bit unpleasant!) you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.