accesso Technology Group (LON:ACSO) Has A Rock Solid Balance Sheet

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.' 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. We note that accesso Technology Group plc (LON:ACSO) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for accesso Technology Group

How Much Debt Does accesso Technology Group Carry?

As you can see below, accesso Technology Group had US$18.9m of debt at June 2024, down from US$34.0m a year prior. But it also has US$37.2m in cash to offset that, meaning it has US$18.3m net cash.

How Healthy Is accesso Technology Group's Balance Sheet?

We can see from the most recent balance sheet that accesso Technology Group had liabilities of US$34.7m falling due within a year, and liabilities of US$29.5m due beyond that. On the other hand, it had cash of US$37.2m and US$36.6m worth of receivables due within a year. So it actually has US$9.59m more liquid assets than total liabilities.

This short term liquidity is a sign that accesso Technology Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, accesso Technology Group boasts net cash, so it's fair to say it does not have a heavy debt load!

Also good is that accesso Technology Group grew its EBIT at 11% 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 ultimately the future profitability of the business will decide if accesso Technology Group 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. accesso Technology Group may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, accesso Technology Group actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that accesso Technology Group has net cash of US$18.3m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$17m, being 152% of its EBIT. So we don't think accesso Technology Group's use of debt is risky. We'd be very excited to see if accesso Technology Group insiders have been snapping up shares. If you are too, then click on this link right now to take a (free) peek at our list of reported insider transactions.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.