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

By
Simply Wall St
Published
April 11, 2022
NasdaqCM:AWH
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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.' 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. As with many other companies Aspira Women's Health Inc. (NASDAQ:AWH) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Aspira Women's Health

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

As you can see below, Aspira Women's Health had US$3.70m of debt at December 2021, down from US$4.73m a year prior. But it also has US$37.2m in cash to offset that, meaning it has US$33.5m net cash.

debt-equity-history-analysis
NasdaqCM:AWH Debt to Equity History April 11th 2022

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

We can see from the most recent balance sheet that Aspira Women's Health had liabilities of US$7.84m falling due within a year, and liabilities of US$3.07m due beyond that. On the other hand, it had cash of US$37.2m and US$1.03m worth of receivables due within a year. So it can boast US$27.3m more liquid assets than total liabilities.

This surplus suggests that Aspira Women's Health is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues 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 ultimately the future profitability of the business will decide if Aspira Women's Health can strengthen its balance sheet over time. 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 46%, to US$6.8m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Aspira Women's Health?

Statistically speaking companies that lose money are riskier than those that make money. 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$28m and booked a US$32m accounting loss. Given it only has net cash of US$33.5m, 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. 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. For example, we've discovered 2 warning signs for Aspira Women's Health 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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