GreenBox POS (NASDAQ:GBOX) May Not Be Profitable But It Seems To Be Managing Its Debt Just Fine, Anyway

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 GreenBox POS (NASDAQ:GBOX) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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.

Check out our latest analysis for GreenBox POS

What Is GreenBox POS's Net Debt?

As you can see below, at the end of December 2021, GreenBox POS had US$59.3m of debt, up from US$1.28m a year ago. Click the image for more detail. But on the other hand it also has US$89.6m in cash, leading to a US$30.3m net cash position.

How Strong Is GreenBox POS' Balance Sheet?

According to the last reported balance sheet, GreenBox POS had liabilities of US$26.8m due within 12 months, and liabilities of US$60.3m due beyond 12 months. Offsetting this, it had US$89.6m in cash and US$19.4m in receivables that were due within 12 months. So it actually has US$21.8m more liquid assets than total liabilities.

This short term liquidity is a sign that GreenBox POS could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that GreenBox POS has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if GreenBox POS 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 GreenBox POS wasn't profitable at an EBIT level, but managed to grow its revenue by 209%, to US$26m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is GreenBox POS?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months GreenBox POS lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$27m of cash and made a loss of US$26m. With only US$30.3m on the balance sheet, it would appear that its going to need to raise capital again soon. The good news for shareholders is that GreenBox POS has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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 GreenBox POS that you should be aware of before investing here.

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.