Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 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?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Fluence Energy Carry?

The image below, which you can click on for greater detail, shows that at March 2024 Fluence Energy had debt of US$52.7m, up from US$21.6m in one year. But it also has US$411.8m in cash to offset that, meaning it has US$359.1m net cash.

A Look At Fluence Energy's Liabilities

Zooming in on the latest balance sheet data, we can see that Fluence Energy had liabilities of US$973.1m due within 12 months and liabilities of US$25.0m due beyond that. Offsetting this, it had US$411.8m in cash and US$356.6m in receivables that were due within 12 months. So its liabilities total US$229.8m more than the combination of its cash and short-term receivables.

Since publicly traded Fluence Energy shares are worth a total of US$3.11b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. 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. 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 Fluence Energy's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Fluence Energy wasn't profitable at an EBIT level, but managed to grow its revenue by 30%, to US$2.2b. With any luck the company will be able to grow its way to profitability.

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$123m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. The good news for Fluence Energy shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But that doesn't change our opinion that the stock is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet.

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.

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.