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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.' 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 note that accesso Technology Group plc (LON:ACSO) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for accesso Technology Group
How Much Debt Does accesso Technology Group Carry?
You can click the graphic below for the historical numbers, but it shows that as of December 2018 accesso Technology Group had US$20.2m of debt, an increase on US$16.1m, over one year. However, its balance sheet shows it holds US$20.7m in cash, so it actually has US$480.0k net cash.
How Strong Is accesso Technology Group's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that accesso Technology Group had liabilities of US$37.4m due within 12 months and liabilities of US$38.6m due beyond that. Offsetting these obligations, it had cash of US$20.7m as well as receivables valued at US$21.6m due within 12 months. So it has liabilities totalling US$33.7m more than its cash and near-term receivables, combined.
Since publicly traded accesso Technology Group shares are worth a total of US$304.0m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, accesso Technology Group also has more cash than debt, so we're pretty confident it can manage its debt safely.
Also good is that accesso Technology Group grew its EBIT at 19% over the last year, further increasing its ability to manage debt. 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 accesso Technology Group'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.