A10 Networks (NYSE:ATEN) Seems To Use Debt Rather Sparingly
Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies A10 Networks, Inc. (NYSE:ATEN) makes use of debt. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
How Much Debt Does A10 Networks Carry?
The image below, which you can click on for greater detail, shows that at September 2025 A10 Networks had debt of US$218.5m, up from none in one year. However, its balance sheet shows it holds US$370.9m in cash, so it actually has US$152.4m net cash.
How Strong Is A10 Networks' Balance Sheet?
We can see from the most recent balance sheet that A10 Networks had liabilities of US$128.7m falling due within a year, and liabilities of US$285.2m due beyond that. Offsetting this, it had US$370.9m in cash and US$61.6m in receivables that were due within 12 months. So it actually has US$18.5m more liquid assets than total liabilities.
This state of affairs indicates that A10 Networks' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$1.28b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, A10 Networks boasts net cash, so it's fair to say it does not have a heavy debt load!
View our latest analysis for A10 Networks
And we also note warmly that A10 Networks grew its EBIT by 17% last year, making its debt load easier to handle. 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 A10 Networks's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While A10 Networks has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, A10 Networks actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.
Summing Up
While we empathize with investors who find debt concerning, you should keep in mind that A10 Networks has net cash of US$152.4m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$72m, being 141% of its EBIT. So we don't think A10 Networks's use of debt is risky. Another factor that would give us confidence in A10 Networks would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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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.