EROI; First Solar, Inc. (FSLR) and More Investors Need to Understand

Canadian Solar Inc. (NASDAQ:CSIQ) is a different story. A poor balance sheet can easily give a company the flu and leave it so venerable that any hiccup can drive it into bankruptcy. The solar industry is very competitive and driven by cost decreases and technological development. Without capital to invest and grow a solar manufacture will quickly fall behind.

This company has a short term debt load of $891 million and a long term debt load of $225 million. With a total debt to equity ratio of 2.85, Canadian Solar is not in a good place. In addition to these factors the company has a low gross margin of 7.9% that leaves it at a disadvantage. Over the coming years it will need capital to upgrade its capital equipment. Its balance sheet is already constrained and this is a bad omen.

Conclusion

In the name of technological growth and conservation we have tried many new technologies like ethanol. A quick look at ethanol’s EROI would have made it obvious that the fuel has serious shortcomings. Solar’s EROI continues to improve; showing that solar is a truly promising fuel. SunPower is one of the best solar investments and First Solar is another worthy of consideration.

The article EROI; The Metric Energy Investors Need to Understand originally appeared on Fool.com and is written by Joshua Bondy.

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