Would ALT5 Sigma (NASDAQ:ALTS) Be Better Off With Less Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that ALT5 Sigma Corporation (NASDAQ:ALTS) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is ALT5 Sigma's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2024 ALT5 Sigma had debt of US$12.9m, up from US$707.0k in one year. However, because it has a cash reserve of US$7.18m, its net debt is less, at about US$5.77m.

How Healthy Is ALT5 Sigma's Balance Sheet?

According to the last reported balance sheet, ALT5 Sigma had liabilities of US$40.9m due within 12 months, and liabilities of US$12.8m due beyond 12 months. Offsetting this, it had US$7.18m in cash and US$2.53m in receivables that were due within 12 months. So its liabilities total US$44.1m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of US$73.2m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But it is ALT5 Sigma's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot .

View our latest analysis for ALT5 Sigma

In the last year ALT5 Sigma managed to produce its first revenue as a listed company, but given the lack of profit, shareholders will no doubt be hoping to see some strong increases.

Caveat Emptor

Over the last twelve months ALT5 Sigma produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable US$7.6m at the EBIT level. 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. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of US$6.2m into a profit. So we do think this stock is quite risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with ALT5 Sigma (including 2 which don't sit too well with us) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.