Does Charge Enterprises (NASDAQ:CRGE) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. Importantly, Charge Enterprises, Inc. (NASDAQ:CRGE) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Charge Enterprises

What Is Charge Enterprises's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2022 Charge Enterprises had debt of US$25.0m, up from US$17.2m in one year. However, its balance sheet shows it holds US$66.0m in cash, so it actually has US$41.0m net cash.

How Strong Is Charge Enterprises' Balance Sheet?

According to the last reported balance sheet, Charge Enterprises had liabilities of US$157.9m due within 12 months, and liabilities of US$24.9m due beyond 12 months. Offsetting these obligations, it had cash of US$66.0m as well as receivables valued at US$83.3m due within 12 months. So it has liabilities totalling US$33.4m more than its cash and near-term receivables, combined.

Of course, Charge Enterprises has a market capitalization of US$447.4m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Charge Enterprises also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Charge Enterprises'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 Charge Enterprises wasn't profitable at an EBIT level, but managed to grow its revenue by 78%, to US$580m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Charge Enterprises?

Although Charge Enterprises had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$11m. 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. One positive is that Charge Enterprises is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But that doesn't change our opinion that the stock is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Charge Enterprises you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.