Is Adtran Networks (ETR:ADV) Using Too Much 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. We note that Adtran Networks SE (ETR:ADV) does have debt on its balance sheet. But is this debt a concern to shareholders?

We check all companies for important risks. See what we found for Adtran Networks in our free report.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Adtran Networks's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Adtran Networks had €68.4m of debt, an increase on €13.3m, over one year. However, it does have €27.0m in cash offsetting this, leading to net debt of about €41.4m.

How Healthy Is Adtran Networks' Balance Sheet?

We can see from the most recent balance sheet that Adtran Networks had liabilities of €164.1m falling due within a year, and liabilities of €117.7m due beyond that. Offsetting this, it had €27.0m in cash and €188.3m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €66.5m.

Given Adtran Networks has a market capitalization of €1.06b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Adtran Networks 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.

Check out our latest analysis for Adtran Networks

In the last year Adtran Networks had a loss before interest and tax, and actually shrunk its revenue by 29%, to €438m. To be frank that doesn't bode well.

Caveat Emptor

Not only did Adtran Networks's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost €18m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of €63m. So we do think this stock is quite risky. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Adtran Networks's profit, revenue, and operating cashflow have changed over the last few years.

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.