Analyzing Aspen Technology’s Debt Levels and Risk Profile

The investment world is often filled with discussions about the risks and rewards associated with different assets. Some argue that volatility is the key indicator of risk, while others, like Warren Buffett, believe that volatility does not necessarily equate to risk. One important factor to consider when evaluating the risk of an investment is the amount of debt a company holds.

One such company under scrutiny is Aspen Technology, Inc. (NASDAQ:AZPN). Like many businesses, Aspen Technology utilizes debt as part of its financial structure. The question then becomes: how much risk does this debt create for the company?

Looking at Aspen Technology’s recent balance sheet, we can see that the company had a total debt of US$67.8 million as of March 2024, a significant increase from the previous year. However, the company also holds a substantial amount of cash – US$177.6 million, resulting in a net cash position of US$109.8 million.

Analyzing further, we find that Aspen Technology has liabilities totaling US$342.3 million due within a year, and US$956.3 million due beyond that. On the asset side, the company holds cash of US$177.6 million and receivables valued at US$588.5 million due within 12 months. This results in liabilities exceeding the combination of cash and short-term receivables by US$532.5 million.

Despite these significant liabilities, Aspen Technology boasts a market capitalization of US$12.8 billion, suggesting that the company’s debt load is manageable. However, it is crucial to continue monitoring the company’s balance sheet to ensure stability moving forward.

While Aspen Technology reported revenue growth of 15% over the past year, it did not report any earnings before interest and tax. The company did generate positive free cash flow of US$281 million, indicating that it may not face significant balance sheet risk in the near term.

Overall, Aspen Technology’s balance sheet appears to be relatively healthy, with a net cash position and manageable debt levels. However, investors should keep a close eye on the company’s financial performance and balance sheet to assess any potential risks in the future.