Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 Fluence Energy, Inc. (NASDAQ:FLNC) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Fluence Energy Carry?

As you can see below, at the end of June 2024, Fluence Energy had US$53.7m of debt, up from US$49.5m a year ago. Click the image for more detail. But on the other hand it also has US$388.2m in cash, leading to a US$334.5m net cash position.

How Healthy Is Fluence Energy's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Fluence Energy had liabilities of US$1.12b due within 12 months and liabilities of US$27.1m due beyond that. On the other hand, it had cash of US$388.2m and US$365.9m worth of receivables due within a year. So it has liabilities totalling US$397.6m more than its cash and near-term receivables, combined.

Since publicly traded Fluence Energy shares are worth a total of US$3.58b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Fluence Energy also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Fluence Energy can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Fluence Energy wasn't profitable at an EBIT level, but managed to grow its revenue by 7.9%, to US$2.1b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Fluence Energy?

Although Fluence Energy had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$101m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. For riskier companies like Fluence Energy I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.