Does Altair Engineering (NASDAQ:ALTR) Have A Healthy Balance Sheet?

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, Altair Engineering Inc. (NASDAQ:ALTR) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Altair Engineering

What Is Altair Engineering's Debt?

The chart below, which you can click on for greater detail, shows that Altair Engineering had US$307.0m in debt in September 2023; about the same as the year before. However, it does have US$431.2m in cash offsetting this, leading to net cash of US$124.2m.

A Look At Altair Engineering's Liabilities

According to the last reported balance sheet, Altair Engineering had liabilities of US$296.9m due within 12 months, and liabilities of US$321.0m due beyond 12 months. Offsetting these obligations, it had cash of US$431.2m as well as receivables valued at US$137.4m due within 12 months. So its liabilities total US$49.3m more than the combination of its cash and short-term receivables.

This state of affairs indicates that Altair Engineering's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$5.67b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Altair Engineering 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 Altair Engineering can strengthen its balance sheet over time. 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 Altair Engineering wasn't profitable at an EBIT level, but managed to grow its revenue by 8.9%, to US$602m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Altair Engineering?

Although Altair Engineering had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$108m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Altair Engineering insider transactions.

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.