Does Ouster (NYSE:OUST) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Ouster, Inc. (NYSE:OUST) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Ouster

How Much Debt Does Ouster Carry?

The image below, which you can click on for greater detail, shows that at December 2023 Ouster had debt of US$44.0m, up from US$39.6m in one year. But it also has US$190.1m in cash to offset that, meaning it has US$146.2m net cash.

How Strong Is Ouster's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Ouster had liabilities of US$81.7m due within 12 months and liabilities of US$69.4m due beyond that. Offsetting this, it had US$190.1m in cash and US$40.0m in receivables that were due within 12 months. So it can boast US$79.1m more liquid assets than total liabilities.

This surplus suggests that Ouster is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Ouster boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Ouster 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 Ouster wasn't profitable at an EBIT level, but managed to grow its revenue by 103%, to US$83m. So there's no doubt that shareholders are cheering for growth

So How Risky Is Ouster?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Ouster 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$141m and booked a US$374m accounting loss. However, it has net cash of US$146.2m, so it has a bit of time before it will need more capital. The good news for shareholders is that Ouster has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. Case in point: We've spotted 4 warning signs for Ouster 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.