David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 note that Clean Energy Fuels Corp. (NASDAQ:CLNE) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

What Is Clean Energy Fuels's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2024 Clean Energy Fuels had debt of US$263.0m, up from US$144.9m in one year. However, it also had US$249.3m in cash, and so its net debt is US$13.7m.

How Healthy Is Clean Energy Fuels' Balance Sheet?

According to the last reported balance sheet, Clean Energy Fuels had liabilities of US$142.4m due within 12 months, and liabilities of US$374.3m due beyond 12 months. Offsetting this, it had US$249.3m in cash and US$123.5m in receivables that were due within 12 months. So its liabilities total US$143.9m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Clean Energy Fuels has a market capitalization of US$692.6m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. 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 Clean Energy Fuels'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.

Over 12 months, Clean Energy Fuels made a loss at the EBIT level, and saw its revenue drop to US$404m, which is a fall of 13%. We would much prefer see growth.

Caveat Emptor

Not only did Clean Energy Fuels's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at US$43m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$28m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with Clean Energy Fuels .

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.