Is Digital Turbine (NASDAQ:APPS) Using Debt Sensibly?

Warren Buffett famously said, '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 note that Digital Turbine, Inc. (NASDAQ:APPS) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Digital Turbine

What Is Digital Turbine's Debt?

As you can see below, Digital Turbine had US$383.5m of debt at March 2024, down from US$410.5m a year prior. However, it also had US$33.6m in cash, and so its net debt is US$349.9m.

How Strong Is Digital Turbine's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Digital Turbine had liabilities of US$236.0m due within 12 months and liabilities of US$415.6m due beyond that. Offsetting these obligations, it had cash of US$33.6m as well as receivables valued at US$191.0m due within 12 months. So its liabilities total US$427.0m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the US$182.6m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Digital Turbine would probably need a major re-capitalization if its creditors were to demand repayment. 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 Digital Turbine 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.

Over 12 months, Digital Turbine made a loss at the EBIT level, and saw its revenue drop to US$544m, which is a fall of 18%. That's not what we would hope to see.

Caveat Emptor

Not only did Digital Turbine's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping US$25m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. It's fair to say the loss of US$420m didn't encourage us either; we'd like to see a profit. And until that time we think this is a risky stock. 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, we've discovered 3 warning signs for Digital Turbine that you should be aware of before investing here.

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.

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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.