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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Curaleaf Holdings, Inc. (CNSX:CURA) does use debt in its business. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for Curaleaf Holdings
What Is Curaleaf Holdings's Debt?
You can click the graphic below for the historical numbers, but it shows that as of June 2019 Curaleaf Holdings had US$95.5m of debt, an increase on US$30.4m, over one year. But it also has US$107.3m in cash to offset that, meaning it has US$11.8m net cash.
A Look At Curaleaf Holdings's Liabilities
We can see from the most recent balance sheet that Curaleaf Holdings had liabilities of US$49.1m falling due within a year, and liabilities of US$174.8m due beyond that. On the other hand, it had cash of US$107.3m and US$14.4m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$102.1m.
Given Curaleaf Holdings has a market capitalization of US$2.86b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Curaleaf Holdings 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 Curaleaf Holdings'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.