Is Impinj (NASDAQ: PI) Using Too Much 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. ‘ When we think about how risky a business is, we always like to look at its use of debt because debt overload can lead to bankruptcy. Above all, Impinj, Inc. (NASDAQ: PI) is in debt. But the real question is whether this debt makes the business risky.
When Is Debt a Problem?
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. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. 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 does Impinj have?
You can click on the graph below for historical numbers, but it shows that as of June 2021 Impinj had a debt of $ 84.0 million, an increase from $ 52.7 million, on a year. However, his balance sheet shows that he holds $ 112.0 million in cash, so he actually has $ 27.9 million in net cash.
NasdaqGS: PI Historical Debt to Equity August 28, 2021
How strong is Impinj’s balance sheet?
According to the latest published balance sheet, Impinj had liabilities of US $ 107.7 million due within 12 months and liabilities of US $ 14.9 million due beyond 12 months. In return, he had $ 112.0 million in cash and $ 26.0 million in receivables due within 12 months. He can therefore take advantage of $ 15.3 million in liquid assets more than total Liabilities.
This fact indicates that Impinj’s balance sheet looks quite strong, as its total liabilities are roughly equal to its liquid assets. So the $ 1.45 billion company is highly unlikely to be cash-strapped, but it’s still worth keeping an eye on the balance sheet. Put simply, the fact that Impinj has more cash than debt is arguably a good indication that it can safely manage its debt. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Impinj can strengthen its balance sheet over time. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Over 12 months, Impinj has seen its income remain fairly stable and has not reported any positive earnings before interest and taxes. While that doesn’t impress much, it’s not too bad either.
So how risky is Impinj?
We are convinced that loss-making companies are, in general, riskier than profitable companies. And in the past year Impinj has recorded a loss of profit before interest and taxes (EBIT), frankly. And during the same period, it recorded negative free cash outflows of US $ 24 million and a book loss of US $ 48 million. Given that it only has $ 27.9 million in net cash, the company may need to raise more capital if it doesn’t hit breakeven soon. Even if its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company does not produce regular free cash flow. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist off the balance sheet. Be aware that Impinj shows 3 warning signs in our investment analysis , you must know…
At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.
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