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David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Akoustis Technologies, Inc. (NASDAQ:AKTS) does carry debt. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.
Check out our latest analysis for Akoustis Technologies
What Is Akoustis Technologies's Net Debt?
As you can see below, at the end of September 2020, Akoustis Technologies had US$24.5m of debt, up from US$19.3m a year ago. Click the image for more detail. However, its balance sheet shows it holds US$37.2m in cash, so it actually has US$12.7m net cash.
How Healthy Is Akoustis Technologies' Balance Sheet?
The latest balance sheet data shows that Akoustis Technologies had liabilities of US$4.18m due within a year, and liabilities of US$25.0m falling due after that. On the other hand, it had cash of US$37.2m and US$346.0k worth of receivables due within a year. So it can boast US$8.37m more liquid assets than total liabilities.
This state of affairs indicates that Akoustis Technologies' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$503.7m company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Akoustis Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Akoustis Technologies'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.