Does Impinj (NASDAQ:PI) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Impinj, Inc. (NASDAQ:PI) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Impinj

How Much Debt Does Impinj Carry?

As you can see below, Impinj had US$281.4m of debt, at September 2023, which is about the same as the year before. You can click the chart for greater detail. However, it also had US$113.2m in cash, and so its net debt is US$168.2m.

A Look At Impinj's Liabilities

Zooming in on the latest balance sheet data, we can see that Impinj had liabilities of US$33.8m due within 12 months and liabilities of US$295.0m due beyond that. Offsetting this, it had US$113.2m in cash and US$48.5m in receivables that were due within 12 months. So its liabilities total US$167.1m more than the combination of its cash and short-term receivables.

Given Impinj has a market capitalization of US$2.23b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 Impinj 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.

In the last year Impinj wasn't profitable at an EBIT level, but managed to grow its revenue by 34%, to US$313m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Even though Impinj managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost US$27m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$79m of cash over the last year. So to be blunt we think it is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Impinj (1 makes us a bit uncomfortable) you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.