Is a.k.a. Brands Holding (NYSE:AKA) A Risky Investment?

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.' 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. As with many other companies a.k.a. Brands Holding Corp. (NYSE:AKA) makes use of debt. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for a.k.a. Brands Holding

How Much Debt Does a.k.a. Brands Holding Carry?

As you can see below, at the end of September 2024, a.k.a. Brands Holding had US$111.9m of debt, up from US$106.7m a year ago. Click the image for more detail. On the flip side, it has US$23.1m in cash leading to net debt of about US$88.8m.

How Healthy Is a.k.a. Brands Holding's Balance Sheet?

The latest balance sheet data shows that a.k.a. Brands Holding had liabilities of US$98.8m due within a year, and liabilities of US$168.3m falling due after that. Offsetting these obligations, it had cash of US$23.1m as well as receivables valued at US$6.69m due within 12 months. So it has liabilities totalling US$237.4m more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's US$193.9m market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. 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 a.k.a. Brands Holding'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.

In the last year a.k.a. Brands Holding wasn't profitable at an EBIT level, but managed to grow its revenue by 3.3%, to US$565m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months a.k.a. Brands Holding produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$11m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of US$31m didn't encourage us either; we'd like to see a profit. And until that time we think this is a risky stock. 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 instance, we've identified 2 warning signs for a.k.a. Brands Holding that you should be aware of.

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.