Rock star Growth Puts AMMO (NASDAQ:POWW) In A Position To Use Debt
David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, AMMO, Inc. (NASDAQ:POWW) does carry debt. But is this debt a concern to shareholders?
When Is Debt A Problem?
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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
Check out our latest analysis for AMMO
What Is AMMO's Debt?
The image below, which you can click on for greater detail, shows that AMMO had debt of US$8.47m at the end of March 2021, a reduction from US$10.8m over a year. But on the other hand it also has US$118.3m in cash, leading to a US$109.9m net cash position.
A Look At AMMO's Liabilities
According to the last reported balance sheet, AMMO had liabilities of US$12.1m due within 12 months, and liabilities of US$6.93m due beyond 12 months. Offsetting this, it had US$118.3m in cash and US$9.01m in receivables that were due within 12 months. So it actually has US$108.3m more liquid assets than total liabilities.
This surplus suggests that AMMO has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, AMMO boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine AMMO's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year AMMO wasn't profitable at an EBIT level, but managed to grow its revenue by 265%, to US$40m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!
So How Risky Is AMMO?
Statistically speaking companies that lose money are riskier than those that make money. And in the last year AMMO 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$22m and booked a US$7.8m accounting loss. With only US$109.9m on the balance sheet, it would appear that its going to need to raise capital again soon. Importantly, AMMO's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example AMMO has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
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.
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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