Yahoo Finance Is LiqTech International (NASDAQ:LIQT) Using Too Much Debt?
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 LiqTech International, Inc. (NASDAQ:LIQT) makes use of debt. But the more important question is: how much risk is that debt creating?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for LiqTech International
What Is LiqTech International's Net Debt?
As you can see below, at the end of September 2021, LiqTech International had US$14.3m of debt, up from none a year ago. Click the image for more detail. But it also has US$19.2m in cash to offset that, meaning it has US$4.90m net cash.
How Strong Is LiqTech International's Balance Sheet?
We can see from the most recent balance sheet that LiqTech International had liabilities of US$14.3m falling due within a year, and liabilities of US$18.4m due beyond that. Offsetting these obligations, it had cash of US$19.2m as well as receivables valued at US$4.17m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$9.33m.
Given LiqTech International has a market capitalization of US$127.1m, it's hard to believe these liabilities pose much 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, LiqTech International also has more cash than debt, so we're pretty confident 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 LiqTech International 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.
In the last year LiqTech International had a loss before interest and tax, and actually shrunk its revenue by 34%, to US$16m. To be frank that doesn't bode well.
So How Risky Is LiqTech International?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months LiqTech International lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$8.2m and booked a US$12m accounting loss. With only US$4.90m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 LiqTech International insider transactions.
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.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
