Is Asure Software (NASDAQ:ASUR) Using Too Much Debt?
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that Asure Software, Inc. (NASDAQ:ASUR) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
When Is Debt Dangerous?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Asure Software
What Is Asure Software's Net Debt?
The image below, which you can click on for greater detail, shows that Asure Software had debt of US$24.5m at the end of December 2020, a reduction from US$26.7m over a year. However, its balance sheet shows it holds US$28.6m in cash, so it actually has US$4.04m net cash.
How Strong Is Asure Software's Balance Sheet?
The latest balance sheet data shows that Asure Software had liabilities of US$350.0m due within a year, and liabilities of US$19.7m falling due after that. Offsetting this, it had US$28.6m in cash and US$4.85m in receivables that were due within 12 months. So it has liabilities totalling US$336.3m more than its cash and near-term receivables, combined.
This deficit casts a shadow over the US$154.9m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Asure Software would likely require a major re-capitalisation if it had to pay its creditors today. Given that Asure Software has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Asure Software can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Asure Software made a loss at the EBIT level, and saw its revenue drop to US$66m, which is a fall of 10%. We would much prefer see growth.
So How Risky Is Asure Software?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Asure Software had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$5.3m and booked a US$16m accounting loss. However, it has net cash of US$4.04m, so it has a bit of time before it will need more capital. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Asure Software you should know about.
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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