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. We can see that LanzaTech Global, Inc. (NASDAQ:LNZA) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does LanzaTech Global Carry?

The image below, which you can click on for greater detail, shows that at September 2024 LanzaTech Global had debt of US$61.6m, up from none in one year. But on the other hand it also has US$86.9m in cash, leading to a US$25.3m net cash position.

How Healthy Is LanzaTech Global's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that LanzaTech Global had liabilities of US$46.9m due within 12 months and liabilities of US$155.7m due beyond that. Offsetting this, it had US$86.9m in cash and US$33.8m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$82.0m.

While this might seem like a lot, it is not so bad since LanzaTech Global has a market capitalization of US$201.7m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, LanzaTech Global 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 ultimately the future profitability of the business will decide if LanzaTech Global 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 LanzaTech Global wasn't profitable at an EBIT level, but managed to grow its revenue by 8.0%, to US$58m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is LanzaTech Global?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months LanzaTech Global lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$90m of cash and made a loss of US$129m. Given it only has net cash of US$25.3m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. Case in point: We've spotted 3 warning signs for LanzaTech Global you should be aware of, and 1 of them makes us a bit uncomfortable.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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.