Here's Why AquaBounty Technologies (NASDAQ:AQB) Can Manage Its Debt Despite Losing Money

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 note that AquaBounty Technologies, Inc. (NASDAQ:AQB) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for AquaBounty Technologies

How Much Debt Does AquaBounty Technologies Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2021 AquaBounty Technologies had US$8.94m of debt, an increase on US$4.18m, over one year. But on the other hand it also has US$210.9m in cash, leading to a US$202.0m net cash position.

How Healthy Is AquaBounty Technologies' Balance Sheet?

According to the last reported balance sheet, AquaBounty Technologies had liabilities of US$2.00m due within 12 months, and liabilities of US$8.90m due beyond 12 months. On the other hand, it had cash of US$210.9m and US$46.7k worth of receivables due within a year. So it can boast US$200.1m more liquid assets than total liabilities.

This luscious liquidity implies that AquaBounty Technologies' balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that AquaBounty Technologies has more cash than debt is arguably a good indication that it can manage its debt safely. 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 AquaBounty Technologies 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.

Given its lack of meaningful operating revenue, AquaBounty Technologies shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is AquaBounty Technologies?

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 AquaBounty Technologies lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$21m of cash and made a loss of US$17m. Given it only has net cash of US$202.0m, the company may need to raise more capital if it doesn't reach break-even soon. The good news for shareholders is that AquaBounty Technologies has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. Be aware that AquaBounty Technologies is showing 4 warning signs in our investment analysis , and 2 of those make us uncomfortable...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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