Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Sezzle Inc. (ASX:SZL) does use debt in its business. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for Sezzle
How Much Debt Does Sezzle Carry?
You can click the graphic below for the historical numbers, but it shows that as of December 2020 Sezzle had US$41.3m of debt, an increase on US$21.1m, over one year. But on the other hand it also has US$84.3m in cash, leading to a US$43.0m net cash position.
A Look At Sezzle's Liabilities
According to the last reported balance sheet, Sezzle had liabilities of US$68.4m due within 12 months, and liabilities of US$45.8m due beyond 12 months. Offsetting these obligations, it had cash of US$84.3m as well as receivables valued at US$82.2m due within 12 months. So it can boast US$52.3m more liquid assets than total liabilities.
This surplus suggests that Sezzle has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Sezzle boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Sezzle can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year Sezzle wasn't profitable at an EBIT level, but managed to grow its revenue by 270%, to US$59m. That's virtually the hole-in-one of revenue growth!
So How Risky Is Sezzle?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Sezzle lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$26m and booked a US$32m accounting loss. But at least it has US$43.0m on the balance sheet to spend on growth, near-term. Importantly, Sezzle's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. We've identified 3 warning signs with Sezzle , and understanding them should be part of your investment process.
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. 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.
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About ASX:SZL
Sezzle
Operates as a technology-enabled payments company primarily in the United States and Canada.
Medium with questionable track record.
