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

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. 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 Net Debt?

As you can see below, Allot had US$39.9m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has US$54.0m in cash to offset that, meaning it has US$14.1m net cash.

How Strong Is Allot's Balance Sheet?

According to the last reported balance sheet, Allot had liabilities of US$38.1m due within 12 months, and liabilities of US$53.4m due beyond 12 months. Offsetting this, it had US$54.0m in cash and US$24.1m in receivables that were due within 12 months. So it has liabilities totalling US$13.5m more than its cash and near-term receivables, combined.

Since publicly traded Allot shares are worth a total of US$183.9m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Allot also has more cash than debt, so we're pretty confident 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'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 10%, to US$92m. We would much prefer see growth.

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 the fact is that over the last twelve months Allot lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$6.7m of cash and made a loss of US$24m. While this does make the company a bit risky, it's important to remember it has net cash of US$14.1m. That means it could keep spending at its current rate for more than two years. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 example - Allot has 1 warning sign we think you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.