Is ACV Auctions (NASDAQ:ACVA) Using Debt Sensibly?

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 note that ACV Auctions Inc. (NASDAQ:ACVA) 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.

See our latest analysis for ACV Auctions

How Much Debt Does ACV Auctions Carry?

The image below, which you can click on for greater detail, shows that at September 2024 ACV Auctions had debt of US$115.0m, up from US$105.0m in one year. But on the other hand it also has US$287.8m in cash, leading to a US$172.8m net cash position.

A Look At ACV Auctions' Liabilities

According to the last reported balance sheet, ACV Auctions had liabilities of US$422.2m due within 12 months, and liabilities of US$155.9m due beyond 12 months. Offsetting these obligations, it had cash of US$287.8m as well as receivables valued at US$334.5m due within 12 months. So it actually has US$44.1m more liquid assets than total liabilities.

This state of affairs indicates that ACV Auctions' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$3.47b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, ACV Auctions boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if ACV Auctions can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, ACV Auctions reported revenue of US$596m, which is a gain of 29%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is ACV Auctions?

Although ACV Auctions had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$8.5m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We think its revenue growth of 29% is a good sign. We'd see further strong growth as an optimistic indication. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for ACV Auctions that you should be aware of before investing here.

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.