We Think Aeries Technology (NASDAQ:AERT) Has A Fair Chunk Of Debt

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Aeries Technology, Inc (NASDAQ:AERT) does carry debt. But the more important question is: how much risk is that debt creating?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

See our latest analysis for Aeries Technology

How Much Debt Does Aeries Technology Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Aeries Technology had US$8.07m of debt, an increase on US$3.90m, over one year. On the flip side, it has US$4.20m in cash leading to net debt of about US$3.87m.

A Look At Aeries Technology's Liabilities

According to the last reported balance sheet, Aeries Technology had liabilities of US$38.8m due within 12 months, and liabilities of US$12.0m due beyond 12 months. Offsetting these obligations, it had cash of US$4.20m as well as receivables valued at US$22.9m due within 12 months. So it has liabilities totalling US$23.8m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Aeries Technology has a market capitalization of US$53.4m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But it is Aeries Technology's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Aeries Technology wasn't profitable at an EBIT level, but managed to grow its revenue by 28%, to US$73m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though Aeries Technology managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Its EBIT loss was a whopping US$11m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$7.8m of cash over the last year. So in short it's a really risky stock. 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. To that end, you should learn about the 5 warning signs we've spotted with Aeries Technology (including 3 which are significant) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.