Genius Brands International (NASDAQ:GNUS) May Not Be Profitable But It Seems To Be Managing Its Debt Just Fine, Anyway

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.' 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 Genius Brands International, Inc. (NASDAQ:GNUS) does have debt on its balance sheet. 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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 step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Genius Brands International

What Is Genius Brands International's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2022 Genius Brands International had debt of US$57.9m, up from US$1.05m in one year. But it also has US$151.1m in cash to offset that, meaning it has US$93.3m net cash.

A Look At Genius Brands International's Liabilities

According to the last reported balance sheet, Genius Brands International had liabilities of US$68.9m due within 12 months, and liabilities of US$8.26m due beyond 12 months. Offsetting this, it had US$151.1m in cash and US$5.52m in receivables that were due within 12 months. So it actually has US$79.5m more liquid assets than total liabilities.

This luscious liquidity implies that Genius Brands International's balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Genius Brands International has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Genius Brands International will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Genius Brands International wasn't profitable at an EBIT level, but managed to grow its revenue by 157%, to US$8.3m. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is Genius Brands International?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Genius Brands International had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$25m and booked a US$55m accounting loss. With only US$93.3m on the balance sheet, it would appear that its going to need to raise capital again soon. Importantly, Genius Brands International's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 3 warning signs we've spotted with Genius Brands International (including 1 which is a bit concerning) .

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.