Is iClick Interactive Asia Group (NASDAQ:ICLK) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that iClick Interactive Asia Group Limited (NASDAQ:ICLK) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for iClick Interactive Asia Group

How Much Debt Does iClick Interactive Asia Group Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2021 iClick Interactive Asia Group had US$75.2m of debt, an increase on US$48.8m, over one year. However, its balance sheet shows it holds US$100.2m in cash, so it actually has US$25.0m net cash.

How Healthy Is iClick Interactive Asia Group's Balance Sheet?

According to the last reported balance sheet, iClick Interactive Asia Group had liabilities of US$181.6m due within 12 months, and liabilities of US$25.8m due beyond 12 months. Offsetting this, it had US$100.2m in cash and US$170.1m in receivables that were due within 12 months. So it can boast US$62.9m more liquid assets than total liabilities.

This surplus suggests that iClick Interactive Asia Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, iClick Interactive Asia Group 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 ultimately the future profitability of the business will decide if iClick Interactive Asia Group 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.

In the last year iClick Interactive Asia Group wasn't profitable at an EBIT level, but managed to grow its revenue by 30%, to US$272m. With any luck the company will be able to grow its way to profitability.

So How Risky Is iClick Interactive Asia Group?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months iClick Interactive Asia Group lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$21m and booked a US$12m accounting loss. With only US$25.0m on the balance sheet, it would appear that its going to need to raise capital again soon. iClick Interactive Asia Group's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great 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. Case in point: We've spotted 2 warning signs for iClick Interactive Asia Group you should be aware of.

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.

If you decide to trade iClick Interactive Asia Group, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all 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 (at) simplywallst.com.