Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Eve Holding, Inc. (NYSE:EVEX) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Eve Holding Carry?

The image below, which you can click on for greater detail, shows that at September 2024 Eve Holding had debt of US$68.3m, up from US$11.3m in one year. However, its balance sheet shows it holds US$279.8m in cash, so it actually has US$211.5m net cash.

How Healthy Is Eve Holding's Balance Sheet?

We can see from the most recent balance sheet that Eve Holding had liabilities of US$54.8m falling due within a year, and liabilities of US$71.1m due beyond that. Offsetting this, it had US$279.8m in cash and US$19.0k in receivables that were due within 12 months. So it actually has US$154.0m more liquid assets than total liabilities.

This surplus suggests that Eve Holding is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that Eve Holding has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Eve Holding can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Given it has no significant operating revenue at the moment, shareholders will be hoping Eve Holding can make progress and gain better traction for the business, before it runs low on cash.

So How Risky Is Eve Holding?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Eve Holding had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$126m of cash and made a loss of US$137m. But at least it has US$211.5m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for Eve Holding (1 shouldn't be ignored) you should be aware of.

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.

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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.