Yahoo Finance IGas Energy (LON:IGAS) Has Debt But No Earnings; Should You Worry?
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. We can see that IGas Energy plc (LON:IGAS) does use debt in its business. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
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. 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.
View our latest analysis for IGas Energy
What Is IGas Energy's Debt?
As you can see below, IGas Energy had UK£21.0m of debt, at December 2018, which is about the same the year before. You can click the chart for greater detail. However, it does have UK£15.1m in cash offsetting this, leading to net debt of about UK£5.87m.
A Look At IGas Energy's Liabilities
Zooming in on the latest balance sheet data, we can see that IGas Energy had liabilities of UK£24.7m due within 12 months and liabilities of UK£58.5m due beyond that. Offsetting these obligations, it had cash of UK£15.1m as well as receivables valued at UK£7.88m due within 12 months. So it has liabilities totalling UK£60.2m more than its cash and near-term receivables, combined.
This deficit is considerable relative to its market capitalization of UK£65.4m, so it does suggest shareholders should keep an eye on IGas Energy's use of debt. This suggests shareholders would heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine IGas 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.
Over 12 months, IGas Energy reported revenue of UK£43m, which is a gain of 20%. We usually like to see faster growth from unprofitable companies, but each to their own.
Caveat Emptor
Over the last twelve months IGas Energy produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping UK£22m. 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. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of-UK£21.4m into a profit. So we do think this stock is quite 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 IGas Energy's profit, revenue, and operating cashflow have changed over the last few years.
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.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
