Is Asure Software (NASDAQ:ASUR) Using Debt Sensibly?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 Asure Software, Inc. (NASDAQ:ASUR) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Asure Software

What Is Asure Software's Debt?

As you can see below, Asure Software had US$6.00m of debt at June 2024, down from US$36.8m a year prior. But it also has US$20.7m in cash to offset that, meaning it has US$14.7m net cash.

A Look At Asure Software's Liabilities

We can see from the most recent balance sheet that Asure Software had liabilities of US$208.7m falling due within a year, and liabilities of US$15.9m due beyond that. Offsetting these obligations, it had cash of US$20.7m as well as receivables valued at US$16.3m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$187.6m.

This is a mountain of leverage relative to its market capitalization of US$247.6m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. Despite its noteworthy liabilities, Asure Software 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 Asure Software 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.

Over 12 months, Asure Software saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

So How Risky Is Asure Software?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Asure Software lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$10m and booked a US$10m accounting loss. But at least it has US$14.7m on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Asure Software has 1 warning sign we think you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.