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Does Aspira Women's Health (NASDAQ:AWH) Have A Healthy Balance Sheet?

Simply Wall St
·4 min read

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 can see that Aspira Women's Health Inc. (NASDAQ:AWH) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Aspira Women's Health

What Is Aspira Women's Health's Net Debt?

As you can see below, at the end of September 2020, Aspira Women's Health had US$2.15m of debt, up from US$1.34m a year ago. Click the image for more detail. But on the other hand it also has US$18.8m in cash, leading to a US$16.7m net cash position.

debt-equity-history-analysis
debt-equity-history-analysis

How Strong Is Aspira Women's Health's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Aspira Women's Health had liabilities of US$4.62m due within 12 months and liabilities of US$2.10m due beyond that. Offsetting these obligations, it had cash of US$18.8m as well as receivables valued at US$848.0k due within 12 months. So it actually has US$13.0m more liquid assets than total liabilities.

This surplus suggests that Aspira Women's Health has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Aspira Women's Health 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 Aspira Women's Health'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.

Over 12 months, Aspira Women's Health reported revenue of US$4.5m, which is a gain of 8.6%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Aspira Women's Health?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Aspira Women's Health had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$13m of cash and made a loss of US$15m. Given it only has net cash of US$16.7m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Like risks, for instance. Every company has them, and we've spotted 6 warning signs for Aspira Women's Health (of which 1 is potentially serious!) you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.