Health Check: How Prudently Does Aspen Aerogels (NYSE:ASPN) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Aspen Aerogels, Inc. (NYSE:ASPN) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

See our latest analysis for Aspen Aerogels

What Is Aspen Aerogels's Debt?

As you can see below, at the end of December 2023, Aspen Aerogels had US$115.0m of debt, up from US$103.6m a year ago. Click the image for more detail. However, it does have US$139.7m in cash offsetting this, leading to net cash of US$24.7m.

How Strong Is Aspen Aerogels' Balance Sheet?

The latest balance sheet data shows that Aspen Aerogels had liabilities of US$78.1m due within a year, and liabilities of US$136.9m falling due after that. On the other hand, it had cash of US$139.7m and US$72.2m worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that Aspen Aerogels' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$1.31b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Aspen Aerogels boasts net cash, so it's fair to say it does not have a heavy debt load! 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.

Over 12 months, Aspen Aerogels reported revenue of US$239m, which is a gain of 32%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Aspen Aerogels?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Aspen Aerogels had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$218m of cash and made a loss of US$46m. With only US$24.7m 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, Aspen Aerogels may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Aspen Aerogels you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.