Is AST SpaceMobile (NASDAQ:ASTS) Using Debt Sensibly?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. 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?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for AST SpaceMobile

How Much Debt Does AST SpaceMobile Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 AST SpaceMobile had US$200.9m of debt, an increase on US$58.5m, over one year. However, it does have US$516.4m in cash offsetting this, leading to net cash of US$315.5m.

A Look At AST SpaceMobile's Liabilities

Zooming in on the latest balance sheet data, we can see that AST SpaceMobile had liabilities of US$94.1m due within 12 months and liabilities of US$224.8m due beyond that. Offsetting this, it had US$516.4m in cash and US$1.15m in receivables that were due within 12 months. So it can boast US$198.7m more liquid assets than total liabilities.

This surplus suggests that AST SpaceMobile has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that AST SpaceMobile has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine AST SpaceMobile'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.

While it hasn't made a profit, at least AST SpaceMobile booked its first revenue as a publicly listed company, in the last twelve months.

So How Risky Is AST SpaceMobile?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year AST SpaceMobile had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$237m of cash and made a loss of US$296m. However, it has net cash of US$315.5m, so it has a bit of time before it will need more capital. 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. We've identified 4 warning signs with AST SpaceMobile (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.