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.' 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. As with many other companies Akoustis Technologies, Inc. (NASDAQ:AKTS) makes use of debt. But the more important question is: how much risk is that debt creating?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Akoustis Technologies

How Much Debt Does Akoustis Technologies Carry?

As you can see below, Akoustis Technologies had US$1.61m of debt at March 2021, down from US$20.2m a year prior. However, its balance sheet shows it holds US$90.4m in cash, so it actually has US$88.8m net cash.

How Strong Is Akoustis Technologies' Balance Sheet?

The latest balance sheet data shows that Akoustis Technologies had liabilities of US$6.76m due within a year, and liabilities of US$783.0k falling due after that. On the other hand, it had cash of US$90.4m and US$1.62m worth of receivables due within a year. So it can boast US$84.5m more liquid assets than total liabilities.

This excess liquidity suggests that Akoustis Technologies is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Akoustis 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 ultimately the future profitability of the business will decide if Akoustis Technologies 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.

In the last year Akoustis Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 130%, to US$4.8m. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is Akoustis Technologies?

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 Akoustis Technologies had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$40m of cash and made a loss of US$44m. But at least it has US$88.8m on the balance sheet to spend on growth, near-term. The good news for shareholders is that Akoustis Technologies has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Akoustis Technologies you should know about.

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.

This article by Simply Wall St is general in nature. 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.

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