Is nLIGHT (NASDAQ:LASR) Using Too Much Debt?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that nLIGHT, Inc. (NASDAQ:LASR) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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 think about a company's use of debt, we first look at cash and debt together.

What Is nLIGHT's Net Debt?

As you can see below, at the end of March 2025, nLIGHT had US$20.0m of debt, up from none a year ago. Click the image for more detail. But it also has US$116.7m in cash to offset that, meaning it has US$96.7m net cash.

How Strong Is nLIGHT's Balance Sheet?

We can see from the most recent balance sheet that nLIGHT had liabilities of US$37.2m falling due within a year, and liabilities of US$40.1m due beyond that. Offsetting this, it had US$116.7m in cash and US$46.2m in receivables that were due within 12 months. So it actually has US$85.7m more liquid assets than total liabilities.

This short term liquidity is a sign that nLIGHT could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that nLIGHT 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 nLIGHT 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.

View our latest analysis for nLIGHT

In the last year nLIGHT wasn't profitable at an EBIT level, but managed to grow its revenue by 2.7%, to US$206m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is nLIGHT?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months nLIGHT lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$22m and booked a US$55m accounting loss. But the saving grace is the US$96.7m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. 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. Be aware that nLIGHT is showing 2 warning signs in our investment analysis , you should know about...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.