Does Ideanomics (NASDAQ:IDEX) Have A Healthy Balance Sheet?

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, Ideanomics, Inc. (NASDAQ:IDEX) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Ideanomics

What Is Ideanomics's Debt?

The image below, which you can click on for greater detail, shows that at March 2021 Ideanomics had debt of US$81.3m, up from US$20.9m in one year. However, its balance sheet shows it holds US$371.0m in cash, so it actually has US$289.7m net cash.

How Healthy Is Ideanomics' Balance Sheet?

We can see from the most recent balance sheet that Ideanomics had liabilities of US$120.8m falling due within a year, and liabilities of US$19.6m due beyond that. On the other hand, it had cash of US$371.0m and US$5.65m worth of receivables due within a year. So it can boast US$236.3m more liquid assets than total liabilities.

It's good to see that Ideanomics has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Ideanomics has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Ideanomics 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 Ideanomics wasn't profitable at an EBIT level, but managed to grow its revenue by 228%, to US$59m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Ideanomics?

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 Ideanomics had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$35m of cash and made a loss of US$87m. With only US$289.7m on the balance sheet, it would appear that its going to need to raise capital again soon. Importantly, Ideanomics's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. We've identified 3 warning signs with Ideanomics (at least 1 which is concerning) , and understanding them should be part of your investment process.

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. 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.
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