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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Atlantic Sapphire AS (OB:ASA-ME) makes use of debt. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
View our latest analysis for Atlantic Sapphire
What Is Atlantic Sapphire's Net Debt?
As you can see below, Atlantic Sapphire had US$1.09m of debt at December 2018, down from US$1.36m a year prior. But on the other hand it also has US$19.0m in cash, leading to a US$17.9m net cash position.
How Healthy Is Atlantic Sapphire's Balance Sheet?
The latest balance sheet data shows that Atlantic Sapphire had liabilities of US$13.6m due within a year, and liabilities of US$905.0k falling due after that. Offsetting these obligations, it had cash of US$19.0m as well as receivables valued at US$1.12m due within 12 months. So it actually has US$5.66m more liquid assets than total liabilities.
This state of affairs indicates that Atlantic Sapphire's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$757.5m company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Atlantic Sapphire boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Atlantic Sapphire'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.
It seems likely shareholders hope that Atlantic Sapphire can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.