Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Accsys Technologies PLC (LON:AXS) does have debt on its balance sheet. 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is Accsys Technologies's Debt?
You can click the graphic below for the historical numbers, but it shows that as of March 2019 Accsys Technologies had €58.9m of debt, an increase on €43.5m, over one year. However, it also had €8.86m in cash, and so its net debt is €50.1m.
How Healthy Is Accsys Technologies's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Accsys Technologies had liabilities of €26.4m due within 12 months and liabilities of €52.5m due beyond that. On the other hand, it had cash of €8.86m and €12.0m worth of receivables due within a year. So it has liabilities totalling €58.0m more than its cash and near-term receivables, combined.
While this might seem like a lot, it is not so bad since Accsys Technologies has a market capitalization of €137.5m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Accsys Technologies can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, Accsys Technologies reported revenue of €75m, which is a gain of 23%. With any luck the company will be able to grow its way to profitability.
While we can certainly savour Accsys Technologies's tasty revenue growth, its negative earnings before interest and tax (EBIT) leaves a bitter aftertaste. To be specific the EBIT loss came in at €3.1m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through €49m of cash over the last year. So suffice it to say we consider the stock very risky. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Accsys Technologies's profit, revenue, and operating cashflow have changed over the last few years.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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