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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Alpha Teknova, Inc. (NASDAQ:TKNO) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Alpha Teknova's Net Debt?

As you can see below, Alpha Teknova had US$13.4m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has US$31.7m in cash to offset that, meaning it has US$18.3m net cash.

How Strong Is Alpha Teknova's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Alpha Teknova had liabilities of US$9.72m due within 12 months and liabilities of US$27.1m due beyond that. On the other hand, it had cash of US$31.7m and US$4.61m worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

Having regard to Alpha Teknova's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$391.8m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Alpha Teknova 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 Alpha Teknova can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Alpha Teknova saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

So How Risky Is Alpha Teknova?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Alpha Teknova lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$15m of cash and made a loss of US$32m. But at least it has US$18.3m on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. For example, we've discovered 3 warning signs for Alpha Teknova that you should be aware of before investing here.

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.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.