Is Astrotech (NASDAQ:ASTC) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Astrotech Corporation (NASDAQ:ASTC) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. 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 Astrotech

How Much Debt Does Astrotech Carry?

The image below, which you can click on for greater detail, shows that Astrotech had debt of US$2.50m at the end of June 2021, a reduction from US$3.04m over a year. However, its balance sheet shows it holds US$63.3m in cash, so it actually has US$60.8m net cash.

How Strong Is Astrotech's Balance Sheet?

We can see from the most recent balance sheet that Astrotech had liabilities of US$4.21m falling due within a year, and liabilities of US$215.0k due beyond that. Offsetting these obligations, it had cash of US$63.3m as well as receivables valued at US$5.0k due within 12 months. So it actually has US$58.9m more liquid assets than total liabilities.

This surplus liquidity suggests that Astrotech's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Astrotech has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Astrotech will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

It seems likely shareholders hope that Astrotech can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.

So How Risky Is Astrotech?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Astrotech lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$7.6m and booked a US$7.6m accounting loss. With only US$60.8m 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. To that end, you should learn about the 3 warning signs we've spotted with Astrotech (including 2 which are a bit concerning) .

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.

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.

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