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. As with many other companies Gogoro Inc. (NASDAQ:GGR) makes use of debt. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.
How Much Debt Does Gogoro Carry?
You can click the graphic below for the historical numbers, but it shows that as of December 2023 Gogoro had US$410.2m of debt, an increase on US$381.2m, over one year. However, it does have US$173.9m in cash offsetting this, leading to net debt of about US$236.3m.
How Strong Is Gogoro's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Gogoro had liabilities of US$214.1m due within 12 months and liabilities of US$371.5m due beyond that. Offsetting these obligations, it had cash of US$173.9m as well as receivables valued at US$17.1m due within 12 months. So its liabilities total US$394.5m more than the combination of its cash and short-term receivables.
This is a mountain of leverage relative to its market capitalization of US$469.2m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Gogoro can strengthen its balance sheet over time. 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 Gogoro had a loss before interest and tax, and actually shrunk its revenue by 8.6%, to US$350m. We would much prefer see growth.
Caveat Emptor
Importantly, Gogoro had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$86m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$57m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Gogoro's profit, revenue, and operating cashflow have changed over the last few years.
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.