Does Akoustis Technologies (NASDAQ:AKTS) Have A Healthy Balance Sheet?

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 Akoustis Technologies, Inc. (NASDAQ:AKTS) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Akoustis Technologies

What Is Akoustis Technologies's Debt?

As you can see below, at the end of March 2023, Akoustis Technologies had US$44.0m of debt, up from none a year ago. Click the image for more detail. However, its balance sheet shows it holds US$52.7m in cash, so it actually has US$8.72m net cash.

A Look At Akoustis Technologies' Liabilities

According to the last reported balance sheet, Akoustis Technologies had liabilities of US$11.8m due within 12 months, and liabilities of US$45.2m due beyond 12 months. On the other hand, it had cash of US$52.7m and US$5.61m worth of receivables due within a year. So it can boast US$1.31m more liquid assets than total liabilities.

This state of affairs indicates that Akoustis Technologies' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$197.7m company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Akoustis Technologies has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Akoustis 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.

Over 12 months, Akoustis Technologies reported revenue of US$24m, which is a gain of 95%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Akoustis Technologies?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Akoustis Technologies had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$64m and booked a US$62m accounting loss. However, it has net cash of US$8.72m, so it has a bit of time before it will need more capital. Akoustis Technologies's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. 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. Be aware that Akoustis Technologies is showing 3 warning signs in our investment analysis , and 1 of those is significant...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.