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Health Check: How Prudently Does SoundThinking (NASDAQ:SSTI) Use Debt?

Simply Wall St · 2d ago

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 SoundThinking, Inc. (NASDAQ:SSTI) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is SoundThinking's Net Debt?

The chart below, which you can click on for greater detail, shows that SoundThinking had US$4.00m in debt in September 2025; about the same as the year before. But it also has US$12.3m in cash to offset that, meaning it has US$8.26m net cash.

debt-equity-history-analysis
NasdaqCM:SSTI Debt to Equity History December 8th 2025

A Look At SoundThinking's Liabilities

According to the last reported balance sheet, SoundThinking had liabilities of US$54.0m due within 12 months, and liabilities of US$6.88m due beyond 12 months. On the other hand, it had cash of US$12.3m and US$28.5m worth of receivables due within a year. So its liabilities total US$20.1m more than the combination of its cash and short-term receivables.

SoundThinking has a market capitalization of US$86.2m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, SoundThinking also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if SoundThinking can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Check out our latest analysis for SoundThinking

In the last year SoundThinking's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

So How Risky Is SoundThinking?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year SoundThinking 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$1.1m and booked a US$11m accounting loss. But the saving grace is the US$8.26m on the balance sheet. That means it could keep spending at its current rate for more than two years. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for SoundThinking that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.