Is Aspira Women's Health (NASDAQ:AWH) Weighed On By Its Debt Load?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Aspira Women's Health Inc. (NASDAQ:AWH) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Aspira Women's Health

How Much Debt Does Aspira Women's Health Carry?

As you can see below, at the end of September 2020, Aspira Women's Health had US$2.15m of debt, up from US$1.34m a year ago. Click the image for more detail. But it also has US$18.8m in cash to offset that, meaning it has US$16.7m net cash.

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

Zooming in on the latest balance sheet data, we can see that Aspira Women's Health had liabilities of US$4.62m due within 12 months and liabilities of US$2.10m due beyond that. Offsetting this, it had US$18.8m in cash and US$848.0k in receivables that were due within 12 months. So it actually has US$13.0m more liquid assets than total liabilities.

This surplus suggests that Aspira Women's Health has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Aspira Women's Health boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Aspira Women's Health 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, Aspira Women's Health reported revenue of US$4.5m, which is a gain of 8.6%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Aspira Women's Health?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Aspira Women's Health lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$13m and booked a US$15m accounting loss. Given it only has net cash of US$16.7m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 6 warning signs for Aspira Women's Health (1 is potentially serious) you should be aware of.

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.

If you’re looking to trade Aspira Women's Health, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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