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.' 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. Importantly, CrowdStrike Holdings, Inc. (NASDAQ:CRWD) does carry debt. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is CrowdStrike Holdings's Net Debt?

As you can see below, CrowdStrike Holdings had US$743.6m of debt, at October 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$4.26b in cash, leading to a US$3.52b net cash position.

How Healthy Is CrowdStrike Holdings' Balance Sheet?

We can see from the most recent balance sheet that CrowdStrike Holdings had liabilities of US$3.00b falling due within a year, and liabilities of US$1.69b due beyond that. Offsetting these obligations, it had cash of US$4.26b as well as receivables valued at US$813.9m due within 12 months. So it can boast US$386.9m more liquid assets than total liabilities.

Having regard to CrowdStrike Holdings' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$90.1b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that CrowdStrike Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine CrowdStrike Holdings'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, CrowdStrike Holdings reported revenue of US$3.7b, 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 CrowdStrike Holdings?

While CrowdStrike Holdings lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of US$127m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short 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. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 2 warning signs we've spotted with CrowdStrike Holdings .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.