Is Asure Software (NASDAQ:ASUR) Using Debt Sensibly?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Asure Software, Inc. (NASDAQ:ASUR) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Asure Software

How Much Debt Does Asure Software Carry?

As you can see below, at the end of June 2022, Asure Software had US$35.9m of debt, up from US$13.4m a year ago. Click the image for more detail. On the flip side, it has US$14.6m in cash leading to net debt of about US$21.3m.

How Strong Is Asure Software's Balance Sheet?

According to the last reported balance sheet, Asure Software had liabilities of US$200.9m due within 12 months, and liabilities of US$44.1m due beyond 12 months. Offsetting these obligations, it had cash of US$14.6m as well as receivables valued at US$5.74m due within 12 months. So its liabilities total US$224.7m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the US$115.8m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Asure Software would likely require a major re-capitalisation if it had to pay its creditors today. 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 Asure Software'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 Asure Software wasn't profitable at an EBIT level, but managed to grow its revenue by 21%, to US$84m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though Asure Software managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost a very considerable US$15m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of US$21m over the last twelve months. So suffice it to say we consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Asure Software (of which 1 makes us a bit uncomfortable!) you should know about.

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.