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FuelCell Energy (NASDAQ:FCEL) Has Debt But No Earnings; Should You Worry?

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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, FuelCell Energy, Inc. (NASDAQ:FCEL) does carry 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for FuelCell Energy

What Is FuelCell Energy's Net Debt?

As you can see below, FuelCell Energy had US$34.1m of debt at April 2021, down from US$134.8m a year prior. But on the other hand it also has US$139.1m in cash, leading to a US$105.0m net cash position.

debt-equity-history-analysis
debt-equity-history-analysis

How Strong Is FuelCell Energy's Balance Sheet?

The latest balance sheet data shows that FuelCell Energy had liabilities of US$56.2m due within a year, and liabilities of US$110.5m falling due after that. Offsetting this, it had US$139.1m in cash and US$19.8m in receivables that were due within 12 months. So it has liabilities totalling US$7.79m more than its cash and near-term receivables, combined.

This state of affairs indicates that FuelCell Energy's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$2.03b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, FuelCell Energy also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine FuelCell Energy'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 FuelCell Energy had a loss before interest and tax, and actually shrunk its revenue by 6.3%, to US$65m. We would much prefer see growth.

So How Risky Is FuelCell Energy?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year FuelCell Energy had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$104m and booked a US$102m accounting loss. Given it only has net cash of US$105.0m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. For example, we've discovered 3 warning signs for FuelCell Energy that you should be aware of before investing here.

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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