Is LiveOne (NASDAQ:LVO) A Risky Investment?

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. We note that LiveOne, Inc. (NASDAQ:LVO) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for LiveOne

How Much Debt Does LiveOne Carry?

The image below, which you can click on for greater detail, shows that LiveOne had debt of US$8.29m at the end of June 2024, a reduction from US$9.87m over a year. On the flip side, it has US$6.17m in cash leading to net debt of about US$2.13m.

How Strong Is LiveOne's Balance Sheet?

We can see from the most recent balance sheet that LiveOne had liabilities of US$48.1m falling due within a year, and liabilities of US$9.87m due beyond that. Offsetting these obligations, it had cash of US$6.17m as well as receivables valued at US$14.8m due within 12 months. So its liabilities total US$37.1m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since LiveOne has a market capitalization of US$149.4m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. But either way, LiveOne has virtually no net debt, 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 LiveOne 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 LiveOne wasn't profitable at an EBIT level, but managed to grow its revenue by 19%, to US$124m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, LiveOne had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$4.9m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of US$15m. So to be blunt we do think it is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with LiveOne , and understanding them should be part of your investment process.

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.