Does Flux Power Holdings (NASDAQ:FLUX) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Flux Power Holdings, Inc. (NASDAQ:FLUX) does carry debt. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Flux Power Holdings

What Is Flux Power Holdings's Debt?

The image below, which you can click on for greater detail, shows that Flux Power Holdings had debt of US$3.70m at the end of December 2020, a reduction from US$13.4m over a year. However, it does have US$4.65m in cash offsetting this, leading to net cash of US$953.0k.

A Look At Flux Power Holdings' Liabilities

The latest balance sheet data shows that Flux Power Holdings had liabilities of US$10.9m due within a year, and liabilities of US$3.09m falling due after that. Offsetting this, it had US$4.65m in cash and US$4.46m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$4.85m.

Of course, Flux Power Holdings has a market capitalization of US$145.3m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Flux Power Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Flux Power Holdings's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Flux Power Holdings reported revenue of US$22m, which is a gain of 115%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth

So How Risky Is Flux Power Holdings?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Flux Power Holdings had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$15m of cash and made a loss of US$15m. With only US$953.0k on the balance sheet, it would appear that its going to need to raise capital again soon. Importantly, Flux Power Holdings's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. Be aware that Flux Power Holdings is showing 5 warning signs in our investment analysis , and 2 of those make us uncomfortable...

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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This article by Simply Wall St is general in nature. 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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