Does Allot (NASDAQ:ALLT) 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. We note that Allot Ltd. (NASDAQ:ALLT) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Allot

What Is Allot's Debt?

The image below, which you can click on for greater detail, shows that at June 2022 Allot had debt of US$39.5m, up from none in one year. But on the other hand it also has US$106.7m in cash, leading to a US$67.2m net cash position.

How Healthy Is Allot's Balance Sheet?

According to the last reported balance sheet, Allot had liabilities of US$58.6m due within 12 months, and liabilities of US$56.4m due beyond 12 months. Offsetting this, it had US$106.7m in cash and US$44.9m in receivables that were due within 12 months. So it can boast US$36.7m more liquid assets than total liabilities.

It's good to see that Allot has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Allot has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Allot's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Allot wasn't profitable at an EBIT level, but managed to grow its revenue by 2.5%, to US$144m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Allot?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Allot lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$37m and booked a US$19m accounting loss. With only US$67.2m on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 - Allot has 1 warning sign we think you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.