Is Inpixon (NASDAQ:INPX) Using Debt In A Risky Way?

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.' 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, Inpixon (NASDAQ:INPX) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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 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, 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.

Check out our latest analysis for Inpixon

How Much Debt Does Inpixon Carry?

The image below, which you can click on for greater detail, shows that Inpixon had debt of US$1.91m at the end of June 2022, a reduction from US$4.25m over a year. However, it does have US$65.8m in cash offsetting this, leading to net cash of US$63.8m.

How Healthy Is Inpixon's Balance Sheet?

We can see from the most recent balance sheet that Inpixon had liabilities of US$14.7m falling due within a year, and liabilities of US$1.05m due beyond that. On the other hand, it had cash of US$65.8m and US$9.05m worth of receivables due within a year. So it can boast US$59.1m more liquid assets than total liabilities.

This short term liquidity is a sign that Inpixon could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Inpixon has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Inpixon's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Inpixon wasn't profitable at an EBIT level, but managed to grow its revenue by 52%, to US$20m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Inpixon?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Inpixon had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$44m and booked a US$122m accounting loss. Given it only has net cash of US$63.8m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Inpixon may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. Case in point: We've spotted 3 warning signs for Inpixon you should be aware of, and 2 of them are a bit unpleasant.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.