≡ Menu

Is Beyond Meat Having Too Much Debt?

Going veggie. Source: Flickr Image

The debt portion of a company is often a hot topic of discussion. The reason is that debt can bring a company to its knee if there is too much of it. It is no exception for Beyond Meat (NASDAQ:BYND).

As an investor myself, I am often interested to find out how a company leverages by using debt and equity. This said, I have created this article to explore Beyond Meat’s leverage in terms of debt and equity.

The debt to equity ratio and debt to asset ratio is exactly what we need to analyze Beyond Meat’s debt or capital structure. By studying these ratios, we can find out how the company funds its balance sheet, whether entirely by debt or by equity or both equally.

Let’s get started!

Beyond Meat’s Total Debt Outstanding

Beyond Meat debt outstanding

Beyond Meat debt outstanding

Let’s first look at Beyond Meat’s total debt outstanding which is shown in the chart above over the past several quarters from 2019 to 2020. The debt outstanding figures in the chart include both the short-term and long-term portion of the debt.

As seen from the chart, Beyond Meat’s total debt outstanding has been slowly creeping up and ticked considerably higher in 2Q 2020. In the latest quarter, the company’s debt outstanding stood at $50 million, a figure roughly 62% higher compared to the prior quarter.

According to Beyond Meat’s financial results, the $50 million debt came entirely from the long-term portion of a revolving credit facility which the company initiated only in 2Q 2020.

Beyond Meat’s Debt Outstanding and Lease Liabilities

Beyond Meat debt and lease liabilities

Beyond Meat debt and lease liabilities

Prior to 2020, Beyond Meat’s operating leases were off-balance sheet items, meaning that the lease liabilities were not shown as part of the company’s liabilities. The reason was mainly due to accounting rules.

However, Beyond Meat adopted a new accounting rule starting in 2020, recognizing operating leases as part of the company’s liabilities in the balance sheets.

As such, you can see that the company’s total debt increased significantly since 1Q20 as shown in the chart above when operating lease obligations were added to the company’s total debt.

Beyond Meat’s total debt, inclusive of lease liabilities, increased to $74 million in 2Q 2020. On a sequential basis, the debt figure increased by more than 70%.

When we compared the company’s debt outstanding with and without including leases obligations, the difference was a whopping $24 million in Q2 2020.

In short, the lease obligations added quite a significant amount of debt to the company. In 2Q20, Beyond Meat’s lease liabilities alone increased the company’s leverage by nearly 50%.

Beyond Meat’s Debt To Equity Ratio

Beyond Meat debt to equity ratio

Beyond Meat debt to equity ratio

Looking at the debt figure alone does not tell us much about Beyond Meat’s leverages.

As such, I have created the chart above to show the company’s debt to equity ratio for the past few quarters from 2019 to 2020. Take note that the debt figure in the chart above does not include lease liabilities.

With debt alone, Beyond Meat’s leverage was much higher in Q2 2020 as shown by the debt to equity ratio of 0.128. The higher leverage in 2Q20 was largely driven by the higher debt outstanding compared to the prior quarter.

The debt to equity ratio of 0.128 implies that Beyond Meat has about $0.13 dollar of debt to $1 dollar of equity.

My opinion is that Beyond Meat’s leverage was considerably low at this ratio. The company has plenty of equity such as cash and cash equivalents or other valuable assets to cover the debt multiple times.

However, this ratio still needs to be compared with that of the food industry and that of the same companies operating in the same industry to arrive at a conclusion.

Beyond Meat’s Debt and Lease Liabilities To Equity Ratio

Beyond Meat debt and lease liabilities to equity ratio

Beyond Meat debt and lease liabilities to equity ratio

When lease obligations were added to Beyond Meat’s total debt, the company’s leverage increased by nearly 50% as shown by the debt to equity ratio of 0.19 in 2Q 2020.

The takeaway is that Beyond Meat has quite a significant amount of lease liabilities. Also, the company’s lease liabilities have also been slowly ticking higher as seen from the increasing ratio in the chart above.

Nevertheless, Beyond Meat’s debt leverage was still considerably low with respect to the company’s equity at 0.19. At this ratio, Beyond Meat’s equity was more than 5X higher than that of the company’s total debt outstanding, leaving the company with plenty of net assets or net worth such as cash and cash equivalents to cover the debt.

Beyond Meat’s Total Liabilities To Equity Ratio

Beyond Meat total liabilities to equity ratio

Beyond Meat total liabilities to equity ratio

The chart above shows Beyond Meat’s leverage in terms of total liabilities to equity ratio. The total liabilities here include everything from debt to payrolls that the company owes to 3rd parties.

Over the past few quarters from 3Q19 to 2Q20, we can see that the leverage ratio has been trending higher and reached a new high at 0.35 as of 2Q 2020.

At this ratio, Beyond Meat has $0.35 dollar of liabilities to $1.00 dollar of equity.

Despite having a record high total liabilities to equity ratio of 0.35 in Q2 2020, it is still reasonably within the manageable mean of the company.

Similarly, at this ratio, Beyond Meat has enough assets to cover the total liabilities. In this aspect, the company’s net assets or net worth were more than 3X higher than the incurred liabilities, be it short or long-term.

Beyond Meat’s Total Liabilities To Asset Ratio

Beyond Meat total liabilities to asset ratio

Beyond Meat total liabilities to asset ratio

The last chart above shows Beyond Meat’s total liabilities to total assets ratio. Total assets here refer to the total fund of the company. Basically, it covers everything that the company owns such as cash, properties, lands, equipment and investment.

The debt to asset ratio here measures Beyond Meat’s capital structure as in how the company funded its balance sheet, whether mostly by debt or by equity or equally both.

As shown in the chart, Beyond Meat’s total liabilities to total assets ratio reached a record high of 26% as of 2Q20. The ratio means that the company’s 26% or almost 1/3 of the total assets were made up of liabilities whereas the rest or 2/3 was made up of equity.

In other words, Beyond Meat funded its balance sheet mostly by equity. In this case, as much as 74% of the company’s total assets were acquired through equity.

Is the makeup of the capital structure a good or bad ratio? Well, with most of the assets of the company funded through equity, Beyond Meat certainly has less risk of a default as a result of accessive debt.

However, Beyond Meat has less control of the company due to much of the company’s assets being acquired through equity. In other words, the downside to a company being funded almost entirely by equity is the dilution of the control of the company.

Conclusion

In summary, Beyond Meat’s debt outstanding has been slowly creeping up and reached $50 million as of 2Q20, representing a record high for the company since its IPO.

Beyond Meat’s total liabilities have also been seeing a similar uptrend over the past few quarters.

In terms of debt leverage, Beyond Meat’s debt to equity ratio shows that the company has only been slightly leveraged as shown by the debt to equity ratio of only 0.128 as of 2Q20.

Even with lease obligation added to total debt, Beyond Meat’s leverage is still on the low side with a debt to equity ratio of only 0.19 as of 2Q20.

The debt to asset ratio of 26% reported in 2Q20 shows that Beyond Meat’s capital structure was mostly made up of equity with about 1/3 of the total assets funded by debt and the rest funded by equity.

References and Credits

1. Financial figures in all charts above were obtained and referenced from financial statements available in Beyond Meat 2Q 2020 financial release.

2. All images in this article are used under creative commons license and sourced from the following websites: Jon Fisher and Steve Jurvetson.

Other posts that you might be interested:

Disclosure

Readers, investors, visitors, researchers, or academicians are encouraged to use, copy, quote, distribute, modify, edit, share and link any materials on this webpage such as the charts, snapshots, texts, paragraphs, etc. You can credit back to this page by a link or a mention of the website. Thanks for sharing!

{ 0 comments… add one }

Leave a Comment