U.S. markets closed
  • S&P Futures

    4,133.75
    -13.00 (-0.31%)
     
  • Dow Futures

    32,679.00
    -78.00 (-0.24%)
     
  • Nasdaq Futures

    13,180.25
    -48.50 (-0.37%)
     
  • Russell 2000 Futures

    1,915.50
    -6.30 (-0.33%)
     
  • Crude Oil

    87.96
    -1.05 (-1.18%)
     
  • Gold

    1,790.40
    -0.80 (-0.04%)
     
  • Silver

    19.78
    -0.06 (-0.31%)
     
  • EUR/USD

    1.0176
    -0.0011 (-0.11%)
     
  • 10-Yr Bond

    2.8400
    +0.1640 (+6.13%)
     
  • Vix

    21.15
    -0.29 (-1.35%)
     
  • GBP/USD

    1.2061
    -0.0009 (-0.08%)
     
  • USD/JPY

    135.0230
    +0.0530 (+0.04%)
     
  • BTC-USD

    23,154.56
    +133.57 (+0.58%)
     
  • CMC Crypto 200

    533.20
    -2.02 (-0.38%)
     
  • FTSE 100

    7,439.74
    -8.32 (-0.11%)
     
  • Nikkei 225

    28,175.87
    +243.67 (+0.87%)
     

Genel Energy (LON:GENL) Has Debt But No Earnings; Should You Worry?

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

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. We can see that Genel Energy plc (LON:GENL) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Genel Energy

What Is Genel Energy's Debt?

As you can see below, Genel Energy had US$269.8m of debt at December 2021, down from US$348.3m a year prior. However, its balance sheet shows it holds US$313.7m in cash, so it actually has US$43.9m net cash.

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

A Look At Genel Energy's Liabilities

Zooming in on the latest balance sheet data, we can see that Genel Energy had liabilities of US$104.0m due within 12 months and liabilities of US$331.3m due beyond that. On the other hand, it had cash of US$313.7m and US$145.0m worth of receivables due within a year. So it can boast US$23.4m more liquid assets than total liabilities.

This short term liquidity is a sign that Genel Energy could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Genel Energy boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Genel Energy's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Genel Energy reported revenue of US$335m, which is a gain of 110%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is Genel Energy?

Although Genel Energy had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$116m. 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. Keeping in mind its 110% revenue growth over the last year, we think there's a decent chance the company is on track. There's no doubt fast top line growth can cure all manner of ills, for a stock. 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 1 warning sign for Genel Energy that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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.