Is Altair Engineering (NASDAQ:ALTR) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Altair Engineering Inc. (NASDAQ:ALTR) does use debt in its business. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Altair Engineering

What Is Altair Engineering's Net Debt?

As you can see below, Altair Engineering had US$306.5m of debt, at June 2023, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$418.3m in cash, leading to a US$111.9m net cash position.

How Strong Is Altair Engineering's Balance Sheet?

The latest balance sheet data shows that Altair Engineering had liabilities of US$319.2m due within a year, and liabilities of US$316.3m falling due after that. Offsetting this, it had US$418.3m in cash and US$142.1m in receivables that were due within 12 months. So it has liabilities totalling US$75.2m more than its cash and near-term receivables, combined.

Having regard to Altair Engineering's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$5.18b 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! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Altair Engineering'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.

Over 12 months, Altair Engineering reported revenue of US$587m, which is a gain of 5.8%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

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$98m. 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. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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 - Altair Engineering has 1 warning sign we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.