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華爾街日報Health Check: How Prudently Does Ark Restaurants (NASDAQ:ARKR) Use Debt?
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. We can see that Ark Restaurants Corp. (NASDAQ:ARKR) does use debt in its business. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Ark Restaurants's Net Debt?
As you can see below, Ark Restaurants had US$3.52m of debt at September 2025, down from US$5.19m a year prior. But it also has US$11.3m in cash to offset that, meaning it has US$7.81m net cash.
How Healthy Is Ark Restaurants' Balance Sheet?
The latest balance sheet data shows that Ark Restaurants had liabilities of US$23.2m due within a year, and liabilities of US$78.2m falling due after that. Offsetting this, it had US$11.3m in cash and US$2.13m in receivables that were due within 12 months. So its liabilities total US$87.9m more than the combination of its cash and short-term receivables.
This deficit casts a shadow over the US$23.3m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Ark Restaurants would likely require a major re-capitalisation if it had to pay its creditors today. Ark Restaurants boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Ark Restaurants will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.
View our latest analysis for Ark Restaurants
In the last year Ark Restaurants had a loss before interest and tax, and actually shrunk its revenue by 9.7%, to US$166m. That's not what we would hope to see.
So How Risky Is Ark Restaurants?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Ark Restaurants had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$1.5m and booked a US$11m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$7.81m. That means it could keep spending at its current rate for more than two years. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Ark Restaurants is showing 2 warning signs in our investment analysis , and 1 of those is a bit unpleasant...
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.