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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. Importantly, Everspin Technologies, Inc. (NASDAQ:MRAM) does carry debt. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
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 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 Everspin Technologies’s Net Debt?
The image below, which you can click on for greater detail, shows that Everspin Technologies had debt of US$11.1m at the end of March 2019, a reduction from US$12.3m over a year. However, its balance sheet shows it holds US$18.5m in cash, so it actually has US$7.45m net cash.
How Healthy Is Everspin Technologies’s Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Everspin Technologies had liabilities of US$13.6m due within 12 months and liabilities of US$7.19m due beyond that. Offsetting these obligations, it had cash of US$18.5m as well as receivables valued at US$5.98m due within 12 months. So it can boast US$3.68m more liquid assets than total liabilities.
This surplus suggests that Everspin Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Everspin Technologies 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 ultimately the future profitability of the business will decide if Everspin Technologies can strengthen its balance sheet over time. So if you’re focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Everspin Technologies reported revenue of US$45m, which is a gain of 3.9%. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
So How Risky Is Everspin Technologies?
By their very nature companies that are losing money are more risky than those with a long history of profitability. Anf the fact is that over the last twelve months Everspin Technologies lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$16m and booked a US$21m accounting loss. However, it has net cash of US$19m, so it has a bit of time before it will need more capital. Overall, its balance sheet doesn’t seem overly risky, at the moment, but we’re always cautious until we see the positive free cash flow. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we’re providing readers this interactive graph showing how Everspin Technologies’s profit, revenue, and operating cashflow have changed over the last few years.
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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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.