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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.' 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. As with many other companies Celsius Holdings, Inc. (NASDAQ:CELH) makes use of debt. 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. 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 step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for Celsius Holdings
How Much Debt Does Celsius Holdings Carry?
You can click the graphic below for the historical numbers, but it shows that as of June 2019 Celsius Holdings had US$9.47m of debt, an increase on US$3.50m, over one year. However, because it has a cash reserve of US$4.83m, its net debt is less, at about US$4.64m.
A Look At Celsius Holdings's Liabilities
The latest balance sheet data shows that Celsius Holdings had liabilities of US$9.36m due within a year, and liabilities of US$9.52m falling due after that. Offsetting this, it had US$4.83m in cash and US$13.5m in receivables that were due within 12 months. So it has liabilities totalling US$515.6k more than its cash and near-term receivables, combined.
This state of affairs indicates that Celsius Holdings'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$207.5m company is struggling for cash, we still think it's worth monitoring its balance sheet. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Celsius Holdings'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.