Yahoo Finance Is NewAge (NASDAQ:NBEV) Using Too Much Debt?
David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, NewAge, Inc. (NASDAQ:NBEV) does carry debt. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
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. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for NewAge
What Is NewAge's Net Debt?
As you can see below, NewAge had US$17.6m of debt at September 2021, down from US$20.0m a year prior. However, it does have US$46.8m in cash offsetting this, leading to net cash of US$29.2m.
How Strong Is NewAge's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that NewAge had liabilities of US$97.8m due within 12 months and liabilities of US$85.7m due beyond that. Offsetting these obligations, it had cash of US$46.8m as well as receivables valued at US$8.87m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$127.8m.
When you consider that this deficiency exceeds the company's US$99.8m market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. Given that NewAge has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total. 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 NewAge'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, NewAge reported revenue of US$440m, which is a gain of 77%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.
So How Risky Is NewAge?
Statistically speaking companies that lose money are riskier than those that make money. And we do note that NewAge had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$32m and booked a US$7.1m accounting loss. With only US$29.2m on the balance sheet, it would appear that its going to need to raise capital again soon. NewAge's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for NewAge 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. 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.
