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 CyberArk Software Ltd. (NASDAQ:CYBR) does use debt in its business. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. 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 think about a company's use of debt, we first look at cash and debt together.
What Is CyberArk Software's Net Debt?
As you can see below, CyberArk Software had US$573.8m of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$1.40b in cash, leading to a US$826.3m net cash position.
How Strong Is CyberArk Software's Balance Sheet?
The latest balance sheet data shows that CyberArk Software had liabilities of US$1.14b due within a year, and liabilities of US$107.5m falling due after that. Offsetting this, it had US$1.40b in cash and US$156.0m in receivables that were due within 12 months. So it actually has US$312.6m more liquid assets than total liabilities.
This surplus suggests that CyberArk Software has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, CyberArk Software boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine CyberArk Software's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, CyberArk Software reported revenue of US$861m, which is a gain of 31%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.
So How Risky Is CyberArk Software?
While CyberArk Software lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$168m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We think its revenue growth of 31% is a good sign. There's no doubt fast top line growth can cure all manner of ills, for a stock. 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. Case in point: We've spotted 1 warning sign for CyberArk Software you should be aware of.
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.