Yahoo Finance Here's Why Novonix (ASX:NVX) Can Manage Its Debt Despite Losing Money
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. We note that Novonix Limited (ASX:NVX) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Novonix
What Is Novonix's Debt?
As you can see below, at the end of December 2021, Novonix had AU$49.7m of debt, up from AU$2.10m a year ago. Click the image for more detail. But it also has AU$259.5m in cash to offset that, meaning it has AU$209.9m net cash.
A Look At Novonix's Liabilities
The latest balance sheet data shows that Novonix had liabilities of AU$5.28m due within a year, and liabilities of AU$59.5m falling due after that. Offsetting these obligations, it had cash of AU$259.5m as well as receivables valued at AU$3.54m due within 12 months. So it can boast AU$198.2m more liquid assets than total liabilities.
This short term liquidity is a sign that Novonix could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Novonix boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Novonix'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, Novonix reported revenue of AU$6.9m, which is a gain of 77%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is Novonix?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Novonix lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through AU$132m of cash and made a loss of AU$36m. With only AU$209.9m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, Novonix may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for Novonix 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.
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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.
