We Think CleanSpark (NASDAQ:CLSK) Has A Fair Chunk Of Debt

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. We can see that CleanSpark, Inc. (NASDAQ:CLSK) does use debt in its business. But is this debt a concern to shareholders?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for CleanSpark

What Is CleanSpark's Debt?

As you can see below, at the end of March 2023, CleanSpark had US$17.6m of debt, up from none a year ago. Click the image for more detail. However, it also had US$11.0m in cash, and so its net debt is US$6.61m.

A Look At CleanSpark's Liabilities

According to the last reported balance sheet, CleanSpark had liabilities of US$41.3m due within 12 months, and liabilities of US$16.4m due beyond 12 months. On the other hand, it had cash of US$11.0m and US$47.0k worth of receivables due within a year. So its liabilities total US$46.6m more than the combination of its cash and short-term receivables.

Given CleanSpark has a market capitalization of US$497.0m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. But either way, CleanSpark has virtually no net debt, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if CleanSpark 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 CleanSpark wasn't profitable at an EBIT level, but managed to grow its revenue by 21%, to US$128m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, CleanSpark still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$85m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of US$106m into a profit. So we do think this stock is quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for CleanSpark (2 make us uncomfortable!) that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.