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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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, uCloudlink Group Inc. (NASDAQ:UCL) does carry debt. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
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. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for uCloudlink Group
What Is uCloudlink Group's Debt?
As you can see below, at the end of March 2022, uCloudlink Group had US$10.3m of debt, up from US$4.90m a year ago. Click the image for more detail. However, it does have US$24.0m in cash offsetting this, leading to net cash of US$13.6m.
How Strong Is uCloudlink Group's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that uCloudlink Group had liabilities of US$51.3m due within 12 months and liabilities of US$248.0k due beyond that. On the other hand, it had cash of US$24.0m and US$15.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$11.9m.
This deficit isn't so bad because uCloudlink Group is worth US$42.3m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, uCloudlink Group boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine uCloudlink Group's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
In the last year uCloudlink Group had a loss before interest and tax, and actually shrunk its revenue by 2.7%, to US$72m. That's not what we would hope to see.