Is BARK (NYSE:BARK) Using Debt Sensibly?

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. Importantly, BARK, Inc. (NYSE:BARK) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for BARK

What Is BARK's Net Debt?

You can click the graphic below for the historical numbers, but it shows that BARK had US$39.8m of debt in December 2023, down from US$81.0m, one year before. However, it does have US$131.3m in cash offsetting this, leading to net cash of US$91.5m.

How Strong Is BARK's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that BARK had liabilities of US$91.0m due within 12 months and liabilities of US$85.3m due beyond that. Offsetting these obligations, it had cash of US$131.3m as well as receivables valued at US$6.46m due within 12 months. So it has liabilities totalling US$38.5m more than its cash and near-term receivables, combined.

Of course, BARK has a market capitalization of US$194.9m, so these liabilities are probably manageable. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, BARK made a loss at the EBIT level, and saw its revenue drop to US$495m, which is a fall of 8.1%. We would much prefer see growth.

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$17m. 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with BARK .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.