NASDAQ:APDN) does have debt on its balance sheet. But is this debt a concern to shareholders?” data-reactid=”28″>The external fund manager backed by Berkshire Hathaway’s Charlie Munger, Li Lu, makes no bones about it when he says ‘The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ 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 Applied DNA Sciences, Inc. (NASDAQ:APDN) does have debt on its balance sheet. But is this debt a concern to shareholders?
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. Part and parcel of capitalism is the process of ‘creative destruction’ where failed businesses are mercilessly liquidated by their bankers. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company 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 and debt together.
Check out our latest analysis for Applied DNA Sciences ” data-reactid=”31″>Check out our latest analysis for Applied DNA Sciences
What Is Applied DNA Sciences’s Debt?
As you can see below, at the end of June 2020, Applied DNA Sciences had US$2.34m of debt, up from US$2.22m a year ago. Click the image for more detail. But it also has US$10.9m in cash to offset that, meaning it has US$8.59m net cash.
How Healthy Is Applied DNA Sciences’s Balance Sheet?
report showing analyst profit forecasts.” data-reactid=”52″>This surplus suggests that Applied DNA Sciences has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Applied DNA Sciences boasts net cash, so it’s fair to say it does not have a heavy debt load! There’s no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Applied DNA Sciences 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, Applied DNA Sciences made a loss at the EBIT level, and saw its revenue drop to US$3.3m, which is a fall of 33%. That makes us nervous, to say the least.
So How Risky Is Applied DNA Sciences?
6 warning signs we’ve spotted with Applied DNA Sciences (including 2 which is don’t sit too well with us) .” data-reactid=”55″>We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Applied DNA Sciences lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$10.0m and booked a US$10.4m accounting loss. But at least it has US$8.59m on the balance sheet to spend on growth, near-term. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn’t produce free cash flow regularly. There’s no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 6 warning signs we’ve spotted with Applied DNA Sciences (including 2 which is don’t sit too well with us) .
list of growth stocks with zero net debt 100% free, right now.” data-reactid=”60″>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.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”61″>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.