LiqTech International (NASDAQ:LIQT) Has Debt But No Earnings; Should You Worry?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies LiqTech International, Inc. (NASDAQ:LIQT) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

Check out our latest analysis for LiqTech International

How Much Debt Does LiqTech International Carry?

You can click the graphic below for the historical numbers, but it shows that LiqTech International had US$4.83m of debt in March 2024, down from US$5.56m, one year before. But on the other hand it also has US$6.81m in cash, leading to a US$1.97m net cash position.

A Look At LiqTech International's Liabilities

Zooming in on the latest balance sheet data, we can see that LiqTech International had liabilities of US$6.63m due within 12 months and liabilities of US$10.2m due beyond that. Offsetting these obligations, it had cash of US$6.81m as well as receivables valued at US$5.56m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$4.47m.

While this might seem like a lot, it is not so bad since LiqTech International has a market capitalization of US$14.5m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. 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 it is future earnings, more than anything, that will determine LiqTech International'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, LiqTech International reported revenue of US$18m, which is a gain of 11%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is LiqTech International?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that LiqTech International had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$7.1m of cash and made a loss of US$8.6m. With only US$1.97m on the balance sheet, it would appear that its going to need to raise capital again soon. 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. To that end, you should be aware of the 4 warning signs we've spotted with LiqTech International .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.