BARK (NYSE:BARK) Has Debt But No Earnings; Should You Worry?

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.' 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. As with many other companies BARK, Inc. (NYSE:BARK) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for BARK

What Is BARK's Net Debt?

The image below, which you can click on for greater detail, shows that BARK had debt of US$40.0m at the end of June 2024, a reduction from US$81.4m over a year. But on the other hand it also has US$117.8m in cash, leading to a US$77.8m net cash position.

How Strong Is BARK's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that BARK had liabilities of US$76.7m due within 12 months and liabilities of US$83.0m due beyond that. On the other hand, it had cash of US$117.8m and US$7.06m worth of receivables due within a year. So it has liabilities totalling US$34.8m more than its cash and near-term receivables, combined.

Given BARK has a market capitalization of US$258.6m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, BARK also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 BARK'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, BARK made a loss at the EBIT level, and saw its revenue drop to US$486m, which is a fall of 7.4%. That's not what we would hope to see.

So How Risky Is BARK?

While BARK lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$11m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - BARK has 2 warning signs we think 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.