- Oops!Something went wrong.Please try again later.
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 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. We note that Blue Apron Holdings, Inc. (NYSE:APRN) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.
How Much Debt Does Blue Apron Holdings Carry?
You can click the graphic below for the historical numbers, but it shows that Blue Apron Holdings had US$43.0m of debt in September 2020, down from US$154.6m, one year before. But on the other hand it also has US$58.7m in cash, leading to a US$15.7m net cash position.
A Look At Blue Apron Holdings's Liabilities
According to the last reported balance sheet, Blue Apron Holdings had liabilities of US$78.5m due within 12 months, and liabilities of US$82.8m due beyond 12 months. Offsetting this, it had US$58.7m in cash and US$11.4m in receivables that were due within 12 months. So its liabilities total US$91.2m more than the combination of its cash and short-term receivables.
This deficit is considerable relative to its market capitalization of US$112.5m, so it does suggest shareholders should keep an eye on Blue Apron Holdings's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. While it does have liabilities worth noting, Blue Apron Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Blue Apron Holdings 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.
Over 12 months, Blue Apron Holdings made a loss at the EBIT level, and saw its revenue drop to US$439m, which is a fall of 12%. That's not what we would hope to see.
So How Risky Is Blue Apron Holdings?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Blue Apron Holdings lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$21m of cash and made a loss of US$56m. Given it only has net cash of US$15.7m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. For example, we've discovered 3 warning signs for Blue Apron Holdings 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.
This article by Simply Wall St is general in nature. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email firstname.lastname@example.org.