Does Pyxis Tankers (NASDAQ:PXS) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Pyxis Tankers Inc. (NASDAQ:PXS) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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 Pyxis Tankers

What Is Pyxis Tankers's Debt?

The image below, which you can click on for greater detail, shows that Pyxis Tankers had debt of US$50.9m at the end of March 2021, a reduction from US$56.9m over a year. On the flip side, it has US$16.6m in cash leading to net debt of about US$34.3m.

A Look At Pyxis Tankers' Liabilities

According to the last reported balance sheet, Pyxis Tankers had liabilities of US$9.59m due within 12 months, and liabilities of US$45.4m due beyond 12 months. Offsetting these obligations, it had cash of US$16.6m as well as receivables valued at US$2.02m due within 12 months. So its liabilities total US$36.4m more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of US$33.1m, we think shareholders really should watch Pyxis Tankers's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Pyxis Tankers'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.

Over 12 months, Pyxis Tankers made a loss at the EBIT level, and saw its revenue drop to US$20m, which is a fall of 27%. To be frank that doesn't bode well.

Caveat Emptor

While Pyxis Tankers's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost US$2.4m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of US$6.1m over the last twelve months. So suffice it to say we consider the stock to be 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 Pyxis Tankers has 4 warning signs (and 1 which can't be ignored) we think you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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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