Is LightPath Technologies (NASDAQ:LPTH) Using Debt Sensibly?

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. Importantly, LightPath Technologies, Inc. (NASDAQ:LPTH) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for LightPath Technologies

What Is LightPath Technologies's Debt?

The image below, which you can click on for greater detail, shows that LightPath Technologies had debt of US$2.63m at the end of March 2023, a reduction from US$4.39m over a year. However, its balance sheet shows it holds US$9.90m in cash, so it actually has US$7.27m net cash.

A Look At LightPath Technologies' Liabilities

We can see from the most recent balance sheet that LightPath Technologies had liabilities of US$7.45m falling due within a year, and liabilities of US$11.0m due beyond that. Offsetting these obligations, it had cash of US$9.90m as well as receivables valued at US$4.79m due within 12 months. So it has liabilities totalling US$3.78m more than its cash and near-term receivables, combined.

Since publicly traded LightPath Technologies shares are worth a total of US$66.1m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, LightPath Technologies 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 it is future earnings, more than anything, that will determine LightPath Technologies'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.

Over 12 months, LightPath Technologies made a loss at the EBIT level, and saw its revenue drop to US$32m, which is a fall of 8.1%. We would much prefer see growth.

So How Risky Is LightPath Technologies?

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 LightPath Technologies lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$2.3m of cash and made a loss of US$4.6m. With only US$7.27m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. For example - LightPath Technologies has 4 warning signs we think you should be aware of.

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.