Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk. 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 can see that Quotient Technology Inc. (NYSE:QUOT) does use debt in its business. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
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 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.
How Much Debt Does Quotient Technology Carry?
You can click the graphic below for the historical numbers, but it shows that as of June 2019 Quotient Technology had US$160.9m of debt, an increase on US$150.7m, over one year. But on the other hand it also has US$253.6m in cash, leading to a US$92.7m net cash position.
A Look At Quotient Technology's Liabilities
The latest balance sheet data shows that Quotient Technology had liabilities of US$110.0m due within a year, and liabilities of US$172.6m falling due after that. On the other hand, it had cash of US$253.6m and US$108.4m worth of receivables due within a year. So it can boast US$79.3m more liquid assets than total liabilities.
This surplus suggests that Quotient Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Quotient Technology 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 ultimately the future profitability of the business will decide if Quotient Technology 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, Quotient Technology reported revenue of US$413m, which is a gain of 18%, 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 Quotient Technology?
Although Quotient Technology had negative earnings before interest and tax (EBIT) over the last twelve months, it generated positive free cash flow of US$4.7m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Quotient Technology insider transactions.
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.
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