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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. Importantly, Ekso Bionics Holdings, Inc. (NASDAQ:EKSO) does carry debt. But should shareholders be worried about its use of debt?
When Is Debt A Problem?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. 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.
What Is Ekso Bionics Holdings's Net Debt?
As you can see below, Ekso Bionics Holdings had US$1.89m of debt at June 2021, down from US$3.08m a year prior. However, it does have US$45.9m in cash offsetting this, leading to net cash of US$44.0m.
A Look At Ekso Bionics Holdings' Liabilities
Zooming in on the latest balance sheet data, we can see that Ekso Bionics Holdings had liabilities of US$4.68m due within 12 months and liabilities of US$8.20m due beyond that. On the other hand, it had cash of US$45.9m and US$2.76m worth of receivables due within a year. So it can boast US$35.8m more liquid assets than total liabilities.
This luscious liquidity implies that Ekso Bionics Holdings' balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Ekso Bionics Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Ekso Bionics Holdings'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, Ekso Bionics Holdings made a loss at the EBIT level, and saw its revenue drop to US$9.3m, which is a fall of 14%. That's not what we would hope to see.
So How Risky Is Ekso Bionics Holdings?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Ekso Bionics Holdings had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$8.6m of cash and made a loss of US$6.5m. With only US$44.0m on the balance sheet, it would appear that its going to need to raise capital again 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. Case in point: We've spotted 3 warning signs for Ekso Bionics Holdings you should be aware of, and 1 of them is a bit unpleasant.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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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