Is Assertio Holdings (NASDAQ:ASRT) Using Too Much Debt?

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 can see that Assertio Holdings, Inc. (NASDAQ:ASRT) does use debt in its business. But is this debt a concern to shareholders?

We've discovered 1 warning sign about Assertio Holdings. View them for free.

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Assertio Holdings's Net Debt?

The chart below, which you can click on for greater detail, shows that Assertio Holdings had US$38.8m in debt in December 2024; about the same as the year before. But it also has US$100.1m in cash to offset that, meaning it has US$61.2m net cash.

How Healthy Is Assertio Holdings' Balance Sheet?

The latest balance sheet data shows that Assertio Holdings had liabilities of US$114.7m due within a year, and liabilities of US$49.0m falling due after that. Offsetting these obligations, it had cash of US$100.1m as well as receivables valued at US$54.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$9.48m.

Since publicly traded Assertio Holdings shares are worth a total of US$59.4m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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. The balance sheet is clearly the area to focus on when you are analysing debt. 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're focused on the future you can check out this free report showing analyst profit forecasts.

View our latest analysis for Assertio Holdings

Over 12 months, Assertio Holdings made a loss at the EBIT level, and saw its revenue drop to US$125m, which is a fall of 18%. That's not what we would hope to see.

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$26m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Assertio Holdings that you should be aware of before investing here.

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.