Is Beyond Meat’s $1 Billion Debt A Cause For Concern?

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 through debt and equity.

That said, I have created this article to explore Beyond Meat’s debt leverage.

Specifically, in this article, we will look at Beyond Meat’s debt to equity and debt to asset ratios.

The debt to equity and debt to asset ratios are exactly what we need to analyze Beyond Meat’s leverage.

From 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 ahead!

Beyond Meat’s Total Debt Outstanding

Beyond Meat’s debt outstanding

Let’s first look at Beyond Meat’s total debt outstanding which is shown in the chart above for the period from fiscal 2019 to 2021.

Beyond Meat’s total debt outstanding includes both short-term and long-term borrowings.

According to the chart, Beyond Meat has little debt prior to fiscal 2021, at only $50 million the most.

However, Beyond Meat’s total debt shot significantly higher in 2021 Q1 to more than $1 billion.

A detailed investigation into Beyond Meat’s filings shows that the company had issued $1 billion debt in March 2021, which consists of 0% Convertible Senior Notes due in 2027.

As a result of the debt issuance, Beyond Meat’s total debt outstanding exceeded $1 billion as of fiscal Q1 2021.

Beyond Meat’s Net Debt

Beyond Meat’s net debt

After taking into consideration Beyond Meat’s cash on hand, the company’s net debt came to only $1.7 million in fiscal Q1 2021.

The reason is that Beyond Meat has more than $1 billion of cash in the same quarter as a result of the debt issuance.

Prior to fiscal 2021, Beyond Meat had more cash than debt, and hence, the negative net debt figures in prior fiscal periods.

Beyond Meat’s Debt and Lease Liabilities

Beyond Meat’s debt with leases included

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 taken into consideration.

Beyond Meat’s total debt, inclusive of lease liabilities, increased to $40 million in fiscal 4Q 2020.

As of fiscal Q1 2021, Beyond Meat’s total debt amounted to $1.1 billion after accounting for lease liabilities.

In short, Beyond Meat’s lease obligations added quite a significant amount of debt or liabilities to the company.

Beyond Meat’s Net Debt and Lease Liabilities

Beyond Meat’s net debt with leases included

Beyond Meat’s net debt increased considerably when we take into account the company’s lease liabilities.

For example, Beyond Meat’s net debt with leases totaled nearly $17 million instead of $1.7 million which we saw earlier.

Since Beyond Meat has quite a considerable amount of cash on hand, its prior net debt amount was still negative despite having leases included.

Beyond Meat’s Debt To Equity Ratio

Beyond Meat’s 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 to see how high the leverage is with respect to equity.

In Beyond Meat’s case, its leverage was the highest in fiscal Q1 2021 at more than 4.0X of equity.

This result comes as no surprise as Beyond Meat has added a significant amount of debt in fiscal 1Q 2021, at $1 billion USD in the 1st quarter alone.

The 4.0X ratio was significantly higher than Beyond Meat’s prior results of debt to equity ratio, indicating that the company has drastically increased its leverage.

At this ratio, Beyond Meat has about $4.00 dollar of debt to $1 dollar of equity.

While Beyond Meat was highly leveraged at a debt to equity ratio of 4.0X, this may not be something of a concern as the liabilities also come with a significant amount of cash on hand, also at more than $1 billion.

Beyond Meat’s Total Debt To Assets Ratio

Beyond Meat’s debt to assets ratio

The debt to asset ratio reflects Beyond Meat’s capital structure, also known as the debt structure.

In Beyond Meat’s case, its capital structure was at 76% in fiscal 1Q 2021, suggesting that the company’s total assets were nearly made up of debt at this ratio.

Prior to fiscal 2021, Beyond Meat’s debt to assets ratio averaged less than 10%, meaning that the company’s total assets were almost made up of equity.

Beyond Meat’s Total Liabilities To Equity Ratio

Beyond Meat’s total liabilities to equity ratio

To find out Beyond Meat’s entire leverage, including debt and other liabilities, we look at the total liabilities to equity ratio.

Total liabilities include everything from debt to payrolls that Beyond Meat owes to 3rd parties.

Similarly, Beyond Meat’s leverage was the highest in fiscal Q1 2021 at 4.60X, which is slightly higher than the corresponding total debt to equity ratio.

This ratio takes into account Beyond Meat’s entire liabilities, including not only debt but also other short and long-term liabilities.

At 4.6X, Beyond Meat’s leverage was definitely on the high side, beating all prior results.

Beyond Meat’s Total Liabilities To Asset Ratio

Beyond Meat’s total liabilities to assets ratio

The last chart above shows Beyond Meat’s total liabilities to total assets ratio.

Total assets refer to the total fund of the company. Basically, it covers everything that the company owns such as cash, properties, lands, equipment and investment.

As mentioned, this ratio measures Beyond Meat’s capital structure, also known as the debt structure.

The ratio gives us information about how the company funded its balance sheet, whether by debt or by equity or equally both.

From the chart, Beyond Meat’s balance sheets were entirely funded by liabilities, at more than 80% in this case in fiscal Q1 2021.

At an 80% ratio, out of $1 dollar of Beyond Meat’s assets, $0.80 dollar of that is debt or liabilities.

Prior results show that Beyond Meat’s balance sheets were made up mostly of equity.

For your information, funding by debt is riskier compared to equity as Beyond Meat has to repay the debt, failing to do so will put the company at the mercy of debtors.

On the other hand, funding by equity is less risky but more expensive as the rate of return by equity may be higher compared to debt.

It’s even more so in today’s low-rate environment.

However, Beyond Meat has less control of the company when more equity is issued to 3rd parties.

For example, Beyond Meat will be giving away more than 10% of the company to 3rd parties if it issued $1 billion of equity when its market cap was only $9 billion as of June 2021.

Beyond Meat’s Debt Schedule

Beyond Meat’s debt schedule

An analysis of Beyond Meat’s debt and leverage will not be concluded without the discussion of the corresponding debt schedule.

As shown in the snapshot above, Beyond Meat’s debt due includes not only its debt such as leases and revolving credit facilities but also purchase commitments.

In Beyond Meat’s case, its debt and commitments due within a year from Dec 31 2020 totaled $132 million, and between 1 and 3 years totaled $64 million.

Beyond Meat’s total debt commitments came to about $204 million as of 2020 Q4.

Keep in mind that this amount has not included the $1 billion debt incurred in 1Q 2021.

Therefore, Beyond Meat’s total commitments would come to about $1.2 billion as of fiscal 1Q 2021.

Since Beyond Meat has more than $1 billion of cash as of Q1 2021, the company should not have any short-term difficulty in satisfying the coming liabilities that totaled only $132 million.

Keep in mind that Beyond Meat’s latest debt issuance which totals $1 billion USD will only be due in 2027.

Therefore, Beyond Meat should be able to easily satisfy its debt obligations based on the debt and cash figures as of fiscal 1Q 2021.

Conclusion

In summary, there is no cause for concern for Beyond Meat’s $1 billion debt as of fiscal Q1 2021.

The reason is that Beyond Meat has $1 billion of cash in the same quarter.

Also, Beyond Meat’s $1 billion new debt will only be due in 2027.

Beyond Meat’s short-term obligations totaled only $132 million and the company should be able to easily satisfy the coming liabilities with its $1 billion cash on hand.

References and Credits

1. Financial figures in this article were obtained and referenced from Beyond Meat’s financial statements available in Beyond Meat 1Q 2021 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.

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