Is Lesaka Technologies (NASDAQ:LSAK) A Risky Investment?

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. As with many other companies Lesaka Technologies, Inc. (NASDAQ:LSAK) makes use of debt. 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Lesaka Technologies

What Is Lesaka Technologies's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2022 Lesaka Technologies had debt of US$45.7m, up from US$11.4m in one year. But on the other hand it also has US$183.7m in cash, leading to a US$138.0m net cash position.

A Look At Lesaka Technologies' Liabilities

The latest balance sheet data shows that Lesaka Technologies had liabilities of US$81.3m due within a year, and liabilities of US$99.4m falling due after that. On the other hand, it had cash of US$183.7m and US$46.6m worth of receivables due within a year. So it actually has US$49.7m more liquid assets than total liabilities.

This excess liquidity suggests that Lesaka Technologies is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Lesaka Technologies has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Lesaka Technologies 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 Lesaka Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to US$135m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Lesaka Technologies?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Lesaka Technologies lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$41m and booked a US$27m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$138.0m. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. Be aware that Lesaka Technologies is showing 1 warning sign in our investment analysis , you should know about...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.