Is Genasys (NASDAQ:GNSS) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Genasys Inc. (NASDAQ:GNSS) does carry debt. But the real question is whether this debt is making the company risky.

We've discovered 2 warning signs about Genasys. View them for free.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Genasys's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Genasys had US$12.4m of debt, an increase on none, over one year. But it also has US$13.6m in cash to offset that, meaning it has US$1.24m net cash.

How Healthy Is Genasys' Balance Sheet?

The latest balance sheet data shows that Genasys had liabilities of US$21.1m due within a year, and liabilities of US$19.9m falling due after that. On the other hand, it had cash of US$13.6m and US$3.54m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$23.8m.

This deficit isn't so bad because Genasys is worth US$101.5m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Genasys also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Genasys's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

See our latest analysis for Genasys

Over 12 months, Genasys made a loss at the EBIT level, and saw its revenue drop to US$27m, which is a fall of 34%. To be frank that doesn't bode well.

So How Risky Is Genasys?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Genasys 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$13m and booked a US$29m accounting loss. But at least it has US$1.24m on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with Genasys (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

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.