Does Allot (NASDAQ:ALLT) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that Allot Ltd. (NASDAQ:ALLT) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Allot

What Is Allot's Debt?

As you can see below, Allot had US$39.6m of debt, at March 2023, which is about the same as the year before. You can click the chart for greater detail. But it also has US$76.3m in cash to offset that, meaning it has US$36.7m net cash.

How Healthy Is Allot's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Allot had liabilities of US$57.1m due within 12 months and liabilities of US$49.2m due beyond that. Offsetting this, it had US$76.3m in cash and US$46.8m in receivables that were due within 12 months. So it can boast US$16.8m more liquid assets than total liabilities.

This surplus suggests that Allot is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Allot boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Allot 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 Allot had a loss before interest and tax, and actually shrunk its revenue by 23%, to US$112m. To be frank that doesn't bode well.

So How Risky Is Allot?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Allot had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$39m and booked a US$37m accounting loss. Given it only has net cash of US$36.7m, the company may need to raise more capital if it doesn't reach break-even soon. 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. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Allot is showing 3 warning signs in our investment analysis , and 1 of those shouldn't be ignored...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.