Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Ouster, Inc. (NYSE:OUST) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Ouster's Debt?

The image below, which you can click on for greater detail, shows that at March 2024 Ouster had debt of US$44.0m, up from US$39.9m in one year. However, its balance sheet shows it holds US$187.8m in cash, so it actually has US$143.8m net cash.

How Strong Is Ouster's Balance Sheet?

The latest balance sheet data shows that Ouster had liabilities of US$83.1m due within a year, and liabilities of US$67.4m falling due after that. Offsetting this, it had US$187.8m in cash and US$12.2m in receivables that were due within 12 months. So it actually has US$49.6m more liquid assets than total liabilities.

This short term liquidity is a sign that Ouster could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Ouster has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Ouster's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Ouster wasn't profitable at an EBIT level, but managed to grow its revenue by 85%, to US$92m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Ouster?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Ouster had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$94m and booked a US$221m accounting loss. However, it has net cash of US$143.8m, so it has a bit of time before it will need more capital. With very solid revenue growth in the last year, Ouster may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 4 warning signs we've spotted with Ouster (including 1 which is significant) .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.