Does Greenlane Holdings (NASDAQ:GNLN) 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.' 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 Greenlane Holdings, Inc. (NASDAQ:GNLN) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Greenlane Holdings

How Much Debt Does Greenlane Holdings Carry?

The image below, which you can click on for greater detail, shows that at September 2021 Greenlane Holdings had debt of US$10.1m, up from US$8.07m in one year. However, its balance sheet shows it holds US$13.2m in cash, so it actually has US$3.09m net cash.

A Look At Greenlane Holdings' Liabilities

According to the last reported balance sheet, Greenlane Holdings had liabilities of US$49.2m due within 12 months, and liabilities of US$17.4m due beyond 12 months. On the other hand, it had cash of US$13.2m and US$15.5m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$37.9m.

While this might seem like a lot, it is not so bad since Greenlane Holdings has a market capitalization of US$96.6m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Greenlane Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Greenlane Holdings 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 Greenlane Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 5.1%, to US$146m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Greenlane Holdings?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Greenlane Holdings had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$44m and booked a US$27m accounting loss. With only US$3.09m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. Case in point: We've spotted 4 warning signs for Greenlane Holdings you should be aware of, and 1 of them makes us a bit uncomfortable.

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.