Is AirBoss of America (TSE:BOS) Weighed On By Its Debt Load?

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.' 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. We note that AirBoss of America Corp. (TSE:BOS) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for AirBoss of America

What Is AirBoss of America's Debt?

As you can see below, AirBoss of America had US$109.5m of debt at June 2024, down from US$114.2m a year prior. However, it also had US$16.9m in cash, and so its net debt is US$92.6m.

A Look At AirBoss of America's Liabilities

According to the last reported balance sheet, AirBoss of America had liabilities of US$75.6m due within 12 months, and liabilities of US$126.1m due beyond 12 months. Offsetting these obligations, it had cash of US$16.9m as well as receivables valued at US$79.9m due within 12 months. So its liabilities total US$104.9m more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of US$87.3m, we think shareholders really should watch AirBoss of America's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if AirBoss of America can strengthen its balance sheet over time. 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 AirBoss of America had a loss before interest and tax, and actually shrunk its revenue by 13%, to US$394m. That's not what we would hope to see.

Caveat Emptor

Not only did AirBoss of America's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping US$44m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of US$55m. In the meantime, we consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example - AirBoss of America has 3 warning signs we think you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.