Does Alpine 4 Holdings (NASDAQ:ALPP) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Alpine 4 Holdings, Inc. (NASDAQ:ALPP) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Alpine 4 Holdings

How Much Debt Does Alpine 4 Holdings Carry?

As you can see below, at the end of June 2023, Alpine 4 Holdings had US$22.1m of debt, up from US$20.7m a year ago. Click the image for more detail. On the flip side, it has US$3.83m in cash leading to net debt of about US$18.3m.

How Strong Is Alpine 4 Holdings' Balance Sheet?

The latest balance sheet data shows that Alpine 4 Holdings had liabilities of US$46.4m due within a year, and liabilities of US$35.2m falling due after that. On the other hand, it had cash of US$3.83m and US$18.0m worth of receivables due within a year. So it has liabilities totalling US$59.7m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the US$29.6m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Alpine 4 Holdings would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Alpine 4 Holdings'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.

In the last year Alpine 4 Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 33%, to US$106m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

While we can certainly appreciate Alpine 4 Holdings's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Its EBIT loss was a whopping US$18m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of US$12m over the last twelve months. That means it's on the risky side of things. 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. We've identified 5 warning signs with Alpine 4 Holdings (at least 3 which are potentially serious) , 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. 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.