Are advanced issuance solutions (NASDAQ: ADES) risky using debt?
David Iben put it well when he said: “Volatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. Like many other companies Advanced Emissions Solutions, Inc. (NASDAQ: ADES) uses debt. But does this debt worry shareholders?
When is debt dangerous?
Debts and other liabilities become risky for a business when it cannot easily meet these obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
How much debt do advanced emissions solutions carry?
The image below, which you can click for more details, shows that Advanced Emissions Solutions had a debt of US $ 3.31 million at the end of June 2021, a reduction from US $ 29.7 million. US dollars over one year. But on the other hand, it also has $ 41.3 million in cash, which leads to a net cash position of $ 38.0 million.
NasdaqGM: ADES History of debt to equity October 3, 2021
How strong is Advanced Emissions Solutions’ balance sheet?
Zooming in on the latest balance sheet data, we can see that Advanced Emissions Solutions had a liability of US $ 27.2 million due within 12 months and a liability of US $ 15.1 million beyond. In compensation for these obligations, it had cash of US $ 41.3 million as well as receivables valued at US $ 15.2 million due within 12 months. He can therefore avail himself of $ 14.3 million in liquid assets more than total Liabilities.
This surplus suggests that Advanced Emissions Solutions has a prudent balance sheet and could likely eliminate its debt without too much difficulty. In short, Advanced Emissions Solutions has crisp cash flow, so it’s fair to say that it doesn’t have heavy debt! There is no doubt that we learn the most about debt from the balance sheet. But it is the benefits of Advanced Emissions Solutions that will influence the balance sheet in the future. So if you want to know more about his earnings, it might be worth checking out this graph of his long-term profit trend.
Over the past year, Advanced Emissions Solutions has not been profitable in terms of EBIT, but has managed to increase its revenue by 33%, to US $ 79 million. Hopefully the business will be able to find its way to profitability.
So how risky are advanced emissions solutions?
Although Advanced Emissions Solutions recorded a loss of earnings before interest and taxes (EBIT) in the past twelve months, it achieved a statutory profit of US $ 36 million. So taking this at face value, and given the money, we don’t think it’s very risky in the short term. We think its 33% revenue growth is a good sign. We would see strong new growth as an optimistic indication. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. For example, Advanced Emissions Solutions has 2 warning signs (and 1 which is a bit disturbing) we think you should know.
Of course, if you are the kind of investor who prefers to buy stocks without going into debt, then feel free to find out. our exclusive list of cash net growth stocks, today.
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