Does Quotient Technology (NYSE:QUOT) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, Quotient Technology Inc. (NYSE:QUOT) does carry debt. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Quotient Technology

How Much Debt Does Quotient Technology Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2021 Quotient Technology had US$182.9m of debt, an increase on US$171.6m, over one year. However, its balance sheet shows it holds US$238.3m in cash, so it actually has US$55.4m net cash.

A Look At Quotient Technology's Liabilities

The latest balance sheet data shows that Quotient Technology had liabilities of US$139.3m due within a year, and liabilities of US$204.0m falling due after that. Offsetting this, it had US$238.3m in cash and US$134.2m in receivables that were due within 12 months. So it actually has US$29.3m more liquid assets than total liabilities.

This surplus suggests that Quotient Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Quotient Technology boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Quotient Technology'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.

Over 12 months, Quotient Technology reported revenue of US$503m, which is a gain of 21%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Quotient Technology?

Although Quotient Technology had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$23m. 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. Keeping in mind its 21% revenue growth over the last year, we think there's a decent chance the company is on track. We'd see further strong growth as an optimistic indication. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Quotient Technology is showing 2 warning signs in our investment analysis , you should know about...

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.
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