Is accesso Technology Group (LON:ACSO) 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.' 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 the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for accesso Technology Group

What Is accesso Technology Group's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 accesso Technology Group had US$26.7m of debt, an increase on US$15.9m, over one year. But it also has US$56.4m in cash to offset that, meaning it has US$29.7m net cash.

A Look At accesso Technology Group's Liabilities

The latest balance sheet data shows that accesso Technology Group had liabilities of US$27.4m due within a year, and liabilities of US$39.4m falling due after that. On the other hand, it had cash of US$56.4m and US$19.3m worth of receivables due within a year. So it can boast US$8.89m more liquid assets than total liabilities.

This surplus suggests that accesso Technology Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that accesso Technology Group has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. 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're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, accesso Technology Group made a loss at the EBIT level, and saw its revenue drop to US$56m, which is a fall of 52%. That makes us nervous, to say the least.

So How Risky Is accesso Technology Group?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that accesso Technology Group had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$18m and booked a US$30m accounting loss. With only US$29.7m on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with accesso Technology Group , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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