Does TransAct Technologies (NASDAQ:TACT) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies TransAct Technologies Incorporated (NASDAQ:TACT) makes use of debt. But is this debt a concern to shareholders?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for TransAct Technologies

How Much Debt Does TransAct Technologies Carry?

As you can see below, at the end of December 2020, TransAct Technologies had US$2.17m of debt, up from none a year ago. Click the image for more detail. However, it does have US$10.4m in cash offsetting this, leading to net cash of US$8.19m.

How Healthy Is TransAct Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that TransAct Technologies had liabilities of US$6.70m due within 12 months and liabilities of US$5.31m due beyond that. On the other hand, it had cash of US$10.4m and US$3.48m worth of receivables due within a year. So it can boast US$1.83m more liquid assets than total liabilities.

Having regard to TransAct Technologies' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$117.4m company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, TransAct Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! 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 TransAct Technologies's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, TransAct Technologies made a loss at the EBIT level, and saw its revenue drop to US$31m, which is a fall of 33%. To be frank that doesn't bode well.

So How Risky Is TransAct Technologies?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months TransAct Technologies lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$4.3m of cash and made a loss of US$5.6m. With only US$8.19m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for TransAct Technologies you should know about.

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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