Yahoo Finance Teekay (NYSE:TK) Has Debt But No Earnings; Should You Worry?
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Teekay Corporation (NYSE:TK) does carry debt. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for Teekay
What Is Teekay's Net Debt?
The image below, which you can click on for greater detail, shows that Teekay had debt of US$83.0m at the end of June 2022, a reduction from US$2.14b over a year. However, its balance sheet shows it holds US$364.8m in cash, so it actually has US$281.8m net cash.
A Look At Teekay's Liabilities
According to the last reported balance sheet, Teekay had liabilities of US$264.9m due within 12 months, and liabilities of US$599.4m due beyond 12 months. Offsetting this, it had US$364.8m in cash and US$176.8m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$322.7m.
This deficit is considerable relative to its market capitalization of US$360.6m, so it does suggest shareholders should keep an eye on Teekay's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. Despite its noteworthy liabilities, Teekay boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Teekay's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
In the last year Teekay wasn't profitable at an EBIT level, but managed to grow its revenue by 96%, to US$838m. With any luck the company will be able to grow its way to profitability.
So How Risky Is Teekay?
Although Teekay had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$25m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. The good news for Teekay shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat risky. 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. Case in point: We've spotted 1 warning sign for Teekay you should be aware of.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
