Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Beyond, Inc. (NYSE:BYON) makes use of debt. But should shareholders be worried about its use of debt?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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.
Check out our latest analysis for Beyond
How Much Debt Does Beyond Carry?
You can click the graphic below for the historical numbers, but it shows that Beyond had US$35.3m of debt in September 2023, down from US$38.8m, one year before. However, its balance sheet shows it holds US$325.4m in cash, so it actually has US$290.1m net cash.
How Strong Is Beyond's Balance Sheet?
The latest balance sheet data shows that Beyond had liabilities of US$209.4m due within a year, and liabilities of US$45.2m falling due after that. Offsetting this, it had US$325.4m in cash and US$19.6m in receivables that were due within 12 months. So it actually has US$90.4m more liquid assets than total liabilities.
This short term liquidity is a sign that Beyond could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Beyond 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 Beyond'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 Beyond had a loss before interest and tax, and actually shrunk its revenue by 26%, to US$1.6b. To be frank that doesn't bode well.
So How Risky Is Beyond?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Beyond had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$69m of cash and made a loss of US$164m. But at least it has US$290.1m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. For example, we've discovered 2 warning signs for Beyond that you should be aware of before investing here.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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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.