Yahoo Finance Rock star Growth Puts Arcimoto (NASDAQ:FUV) In A Position To Use 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.' 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. As with many other companies Arcimoto, Inc. (NASDAQ:FUV) makes use of debt. 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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.
Check out our latest analysis for Arcimoto
How Much Debt Does Arcimoto Carry?
The image below, which you can click on for greater detail, shows that at September 2021 Arcimoto had debt of US$1.65m, up from US$1.30m in one year. But it also has US$33.0m in cash to offset that, meaning it has US$31.3m net cash.
How Healthy Is Arcimoto's Balance Sheet?
According to the last reported balance sheet, Arcimoto had liabilities of US$5.97m due within 12 months, and liabilities of US$2.09m due beyond 12 months. Offsetting these obligations, it had cash of US$33.0m as well as receivables valued at US$38.4k due within 12 months. So it can boast US$25.0m more liquid assets than total liabilities.
This surplus suggests that Arcimoto has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Arcimoto boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Arcimoto's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
In the last year Arcimoto wasn't profitable at an EBIT level, but managed to grow its revenue by 68%, to US$4.2m. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is Arcimoto?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Arcimoto lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$47m of cash and made a loss of US$31m. Given it only has net cash of US$31.3m, the company may need to raise more capital if it doesn't reach break-even soon. Arcimoto'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. 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. Be aware that Arcimoto is showing 4 warning signs in our investment analysis , and 1 of those is concerning...
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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.
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