Is LiqTech International (NASDAQ:LIQT) Using Debt In A Risky Way?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 LiqTech International, Inc. (NASDAQ:LIQT) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is LiqTech International's Debt?

As you can see below, at the end of June 2025, LiqTech International had US$6.50m of debt, up from US$4.98m a year ago. Click the image for more detail. But on the other hand it also has US$8.67m in cash, leading to a US$2.17m net cash position.

How Healthy Is LiqTech International's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that LiqTech International had liabilities of US$5.48m due within 12 months and liabilities of US$12.3m due beyond that. On the other hand, it had cash of US$8.67m and US$5.24m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$3.88m.

Given LiqTech International has a market capitalization of US$22.0m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, LiqTech International also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 LiqTech International can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

See our latest analysis for LiqTech International

In the last year LiqTech International had a loss before interest and tax, and actually shrunk its revenue by 13%, to US$15m. That's not what we would hope to see.

So How Risky Is LiqTech International?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months LiqTech International lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$7.5m of cash and made a loss of US$10m. But at least it has US$2.17m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 5 warning signs for LiqTech International (2 are potentially serious!) that you should be aware of before investing here.

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.