Is Assertio Holdings (NASDAQ:ASRT) Using Debt Sensibly?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Assertio Holdings, Inc. (NASDAQ:ASRT) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Assertio Holdings

How Much Debt Does Assertio Holdings Carry?

The chart below, which you can click on for greater detail, shows that Assertio Holdings had US$38.7m in debt in June 2024; about the same as the year before. But it also has US$88.4m in cash to offset that, meaning it has US$49.7m net cash.

How Healthy Is Assertio Holdings' Balance Sheet?

The latest balance sheet data shows that Assertio Holdings had liabilities of US$92.2m due within a year, and liabilities of US$55.1m falling due after that. On the other hand, it had cash of US$88.4m and US$39.9m worth of receivables due within a year. So it has liabilities totalling US$19.0m more than its cash and near-term receivables, combined.

Since publicly traded Assertio Holdings shares are worth a total of US$116.3m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Assertio Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Assertio Holdings's ability to maintain a healthy balance sheet going forward. 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 Assertio Holdings had a loss before interest and tax, and actually shrunk its revenue by 21%, to US$132m. That makes us nervous, to say the least.

So How Risky Is Assertio Holdings?

Although Assertio Holdings had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$23m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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. To that end, you should be aware of the 2 warning signs we've spotted with Assertio Holdings .

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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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.