The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Montauk Renewables, Inc. (NASDAQ:MNTK) does carry debt. 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. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Montauk Renewables Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2025 Montauk Renewables had US$66.7m of debt, an increase on US$57.6m, over one year. However, it does have US$7.05m in cash offsetting this, leading to net debt of about US$59.7m.

How Healthy Is Montauk Renewables' Balance Sheet?

The latest balance sheet data shows that Montauk Renewables had liabilities of US$53.9m due within a year, and liabilities of US$68.7m falling due after that. On the other hand, it had cash of US$7.05m and US$6.74m worth of receivables due within a year. So it has liabilities totalling US$108.8m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Montauk Renewables has a market capitalization of US$210.5m, 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. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Montauk Renewables's ability to maintain a healthy balance sheet going forward.

In the last year Montauk Renewables had a loss before interest and tax, and actually shrunk its revenue by 18%, to US$161m. That's not what we would hope to see.

Caveat Emptor

While Montauk Renewables's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at US$2.9m. 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. However, it doesn't help that it burned through US$53m of cash over the last year. So in short it's a really risky stock. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Montauk Renewables's profit, revenue, and operating cashflow have changed over the last few years.

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.