Is Genasys (NASDAQ:GNSS) Using Debt Sensibly?

Warren Buffett famously said, '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, Genasys Inc. (NASDAQ:GNSS) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Genasys

How Much Debt Does Genasys Carry?

The image below, which you can click on for greater detail, shows that at September 2024 Genasys had debt of US$12.0m, up from none in one year. However, its balance sheet shows it holds US$12.9m in cash, so it actually has US$880.0k net cash.

How Healthy Is Genasys' Balance Sheet?

The latest balance sheet data shows that Genasys had liabilities of US$14.1m due within a year, and liabilities of US$22.3m falling due after that. Offsetting this, it had US$12.9m in cash and US$3.87m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$19.6m.

Of course, Genasys has a market capitalization of US$129.4m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Genasys boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Genasys 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 Genasys had a loss before interest and tax, and actually shrunk its revenue by 49%, to US$24m. That makes us nervous, to say the least.

So How Risky Is Genasys?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Genasys lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$20m and booked a US$32m accounting loss. Given it only has net cash of US$880.0k, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Genasys .

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.