Lantronix (NASDAQ: LTRX) has debt but no profit; Should we be worried?

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Berkshire Hathaway’s Charlie Munger-backed external fund manager Li Lu is quick to say “The biggest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital”. So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. Like many other companies Lantronix, Inc. (NASDAQ: LTRX) uses debt. But should shareholders be concerned about its use of debt?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. Ultimately, if the company can’t 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. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. When we look at debt levels, we first consider both liquidity and debt levels.

What is Lantronix’s debt?

The image below, which you can click for more details, shows Lantronix owed US $ 3.68 million at the end of June 2021, a reduction from US $ 5.15 million on a year. However, his balance sheet shows that he has $ 9.74 million in cash, so he actually has $ 6.06 million in net cash.

NasdaqCM: LTRX Debt to Equity History October 4, 2021

A look at the responsibilities of Lantronix

The latest balance sheet data shows Lantronix had debts of $ 22.9 million maturing within one year, and debts of $ 3.61 million maturing thereafter. On the other hand, he had US $ 9.74 million in cash and US $ 15.5 million in receivables due within one year. Its liabilities therefore total $ 1.26 million more than the combination of its cash and short-term receivables.

Considering Lantronix’s size, it appears that its liquid assets are well balanced with its total liabilities. So the $ 179.3 million company is highly unlikely to run out of cash, but it’s still worth keeping an eye on the balance sheet. While he has some liabilities to note, Lantronix also has more cash than debt, so we’re pretty confident he can handle his debt safely. There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide whether Lantronix can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

In the past year, Lantronix has not been profitable on EBIT level, but has managed to increase its revenue by 19%, to US $ 71 million. This rate of growth is a bit slow for our taste, but it takes all types to make a world.

So how risky is Lantronix?

Although Lantronix recorded a loss of earnings before interest and taxes (EBIT) over the past twelve months, it generated positive free cash flow of US $ 3.5 million. Thus, although it is in deficit, it does not appear to present too much short-term balance sheet risk, given the net cash position. With uninspiring revenue growth, we would really need to see positive EBIT before we can gather much enthusiasm for this business. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks lie on the balance sheet – far from it. For example – Lantronix has 1 warning sign we think you should be aware.

If you are interested in investing in companies that can generate profits without the burden of debt, check out this page. free list of growing companies that have net cash on the balance sheet.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.

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