Does AST SpaceMobile (NASDAQ:ASTS) 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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that AST SpaceMobile, Inc. (NASDAQ:ASTS) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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 AST SpaceMobile

What Is AST SpaceMobile's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2024 AST SpaceMobile had debt of US$161.1m, up from US$4.70m in one year. But on the other hand it also has US$210.0m in cash, leading to a US$48.9m net cash position.

How Strong Is AST SpaceMobile's Balance Sheet?

The latest balance sheet data shows that AST SpaceMobile had liabilities of US$31.9m due within a year, and liabilities of US$184.0m falling due after that. Offsetting this, it had US$210.0m in cash and US$1.15m in receivables that were due within 12 months. So it has liabilities totalling US$4.76m more than its cash and near-term receivables, combined.

This state of affairs indicates that AST SpaceMobile's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$2.64b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, AST SpaceMobile 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 ultimately the future profitability of the business will decide if AST SpaceMobile can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, AST SpaceMobile made a loss at the EBIT level, and saw its revenue drop to US$500k, which is a fall of 96%. To be frank that doesn't bode well.

So How Risky Is AST SpaceMobile?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year AST SpaceMobile had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$302m and booked a US$91m accounting loss. Given it only has net cash of US$48.9m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. For example, we've discovered 4 warning signs for AST SpaceMobile (3 don't sit too well with us!) that you should be aware of before investing here.

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.

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.

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