Aspen Aerogels (NYSE:ASPN) Has A Pretty Healthy Balance Sheet

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. We note that Aspen Aerogels, Inc. (NYSE:ASPN) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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. 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.

What Is Aspen Aerogels's Debt?

As you can see below, at the end of December 2024, Aspen Aerogels had US$156.8m of debt, up from US$115.0m a year ago. Click the image for more detail. But it also has US$220.9m in cash to offset that, meaning it has US$64.0m net cash.

A Look At Aspen Aerogels' Liabilities

Zooming in on the latest balance sheet data, we can see that Aspen Aerogels had liabilities of US$110.1m due within 12 months and liabilities of US$170.3m due beyond that. Offsetting this, it had US$220.9m in cash and US$109.1m in receivables that were due within 12 months. So it can boast US$49.5m more liquid assets than total liabilities.

This short term liquidity is a sign that Aspen Aerogels could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Aspen Aerogels boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Aspen Aerogels

We also note that Aspen Aerogels improved its EBIT from a last year's loss to a positive US$62m. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Aspen Aerogels 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Aspen Aerogels has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last year, Aspen Aerogels burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Aspen Aerogels has net cash of US$64.0m, as well as more liquid assets than liabilities. So we are not troubled with Aspen Aerogels's debt use. 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. Be aware that Aspen Aerogels is showing 1 warning sign in our investment analysis , you should know about...

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.

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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.