Is Aspira Women's Health (NASDAQ:AWH) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Aspira Women's Health Inc. (NASDAQ:AWH) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Aspira Women's Health

What Is Aspira Women's Health's Debt?

As you can see below, Aspira Women's Health had US$3.39m of debt at March 2022, down from US$4.48m a year prior. However, it does have US$26.9m in cash offsetting this, leading to net cash of US$23.5m.

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

The latest balance sheet data shows that Aspira Women's Health had liabilities of US$6.14m due within a year, and liabilities of US$2.98m falling due after that. Offsetting this, it had US$26.9m in cash and US$1.50m in receivables that were due within 12 months. So it actually has US$19.2m more liquid assets than total liabilities.

This excess liquidity suggests that Aspira Women's Health is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Aspira Women's Health 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 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.

Over 12 months, Aspira Women's Health reported revenue of US$7.2m, which is a gain of 46%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Aspira Women's Health?

By their very nature companies that are losing money are more risky than those with a long history of profitability. 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$33m and booked a US$35m accounting loss. Given it only has net cash of US$23.5m, the company may need to raise more capital if it doesn't reach break-even soon. Aspira Women's Health's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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, we've discovered 4 warning signs for Aspira Women's Health (1 can't be ignored!) that you should be aware of before investing here.

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.

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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.