Is Acsion (JSE:ACS) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Acsion Limited (JSE:ACS) does use debt in its business. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. 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.

How Much Debt Does Acsion Carry?

You can click the graphic below for the historical numbers, but it shows that Acsion had R894.4m of debt in August 2025, down from R986.8m, one year before. But on the other hand it also has R1.07b in cash, leading to a R176.0m net cash position.

How Healthy Is Acsion's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Acsion had liabilities of R453.7m due within 12 months and liabilities of R4.31b due beyond that. Offsetting this, it had R1.07b in cash and R68.3m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by R3.63b.

This is a mountain of leverage relative to its market capitalization of R4.23b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. While it does have liabilities worth noting, Acsion also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Acsion

And we also note warmly that Acsion grew its EBIT by 15% last year, making its debt load easier to handle. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Acsion will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Acsion 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, Acsion recorded free cash flow worth a fulsome 93% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

Although Acsion's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of R176.0m. And it impressed us with free cash flow of R815m, being 93% of its EBIT. So we are not troubled with Acsion's debt use. 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 Acsion (1 is a bit unpleasant!) that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.