Does Plug Power (NASDAQ:PLUG) use too much debt?
David Iben said it well when he said: “Volatility is not a risk that interests us. What matters to us is to avoid the permanent loss of capital. It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. We note that Power socket inc. (NASDAQ:PLUG) has debt on its balance sheet. But does this debt worry shareholders?
Why is debt risky?
Debt helps a business until the business struggles to pay it back, either with new capital or with free cash flow. If things go really bad, lenders can take over the business. However, a more frequent (but still costly) event is when a company has to issue shares at bargain prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. The first step when considering a company’s debt levels is to consider its cash and debt together.
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What is Plug Power’s debt?
As you can see below, at the end of March 2022, Plug Power had a debt of $546.2 million, compared to $514.0 million a year ago. Click on the image for more details. But on the flip side, it also has $3.44 billion in cash, resulting in a net cash position of $2.90 billion.
How strong is Plug Power’s balance sheet?
Zooming in on the latest balance sheet data, we can see that Plug Power had liabilities of US$358.3 million due within 12 months and liabilities of US$969.2 million due beyond. On the other hand, it had a cash position of 3.44 billion dollars and 99.3 million dollars of receivables at less than one year. So he actually has 2.21 billion US dollars After liquid assets than total liabilities.
It’s good to see that Plug Power has plenty of cash on its balance sheet, suggesting careful liability management. Given that he has easily sufficient short-term cash, we don’t think he will have any problems with his lenders. In short, Plug Power has clean cash, so it’s fair to say that it doesn’t have a lot of debt! There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide whether Plug Power can strengthen its balance sheet over time. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.
Although it did not make a profit, at least Plug Power recorded its first earnings as a publicly traded company, in the last twelve months.
So, how risky is outlet feeding?
By their very nature, companies that lose money are riskier than those with a long history of profitability. And we note that Plug Power posted a loss in earnings before interest and taxes (EBIT) over the past year. And during the same period, it recorded a negative free cash outflow of US$716 million and recorded a book loss of US$556 million. With just $2.90 billion on the balance sheet, it looks like it will soon have to raise capital again. Even if its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company does not produce free cash flow regularly. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. Be aware that Plug Power is displayed 1 warning sign in our investment analysis you should know…
Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient growth stocks today.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.