Health Check: How Prudently Does Aspira Women's Health (NASDAQ:AWH) Use Debt?

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 Aspira Women's Health Inc. (NASDAQ:AWH) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 Aspira Women's Health

What Is Aspira Women's Health's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2021 Aspira Women's Health had debt of US$2.97m, up from US$2.15m in one year. But on the other hand it also has US$44.9m in cash, leading to a US$41.9m net cash position.

How Strong Is Aspira Women's Health's Balance Sheet?

According to the last reported balance sheet, Aspira Women's Health had liabilities of US$6.41m due within 12 months, and liabilities of US$3.13m due beyond 12 months. Offsetting these obligations, it had cash of US$44.9m as well as receivables valued at US$1.10m due within 12 months. So it can boast US$36.4m more liquid assets than total liabilities.

It's good to see that Aspira Women's Health has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Aspira Women's Health has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Aspira Women's Health'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.

In the last year Aspira Women's Health wasn't profitable at an EBIT level, but managed to grow its revenue by 42%, to US$6.4m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Aspira Women's Health?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Aspira Women's Health had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$25m and booked a US$29m accounting loss. With only US$41.9m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, Aspira Women's Health may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Aspira Women's Health , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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.