Is WiseTech Global (ASX:WTC) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that WiseTech Global Limited (ASX:WTC) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. 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 WiseTech Global

What Is WiseTech Global's Debt?

As you can see below, WiseTech Global had US$30.0m of debt at December 2024, down from US$136.3m a year prior. However, it does have US$103.0m in cash offsetting this, leading to net cash of US$73.0m.

How Healthy Is WiseTech Global's Balance Sheet?

We can see from the most recent balance sheet that WiseTech Global had liabilities of US$215.7m falling due within a year, and liabilities of US$187.3m due beyond that. Offsetting this, it had US$103.0m in cash and US$114.8m in receivables that were due within 12 months. So it has liabilities totalling US$185.2m more than its cash and near-term receivables, combined.

Having regard to WiseTech Global's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$17.8b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, WiseTech Global also has more cash than debt, so we're pretty confident it can manage its debt safely.

And we also note warmly that WiseTech Global grew its EBIT by 20% last year, making its debt load easier to handle. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if WiseTech Global 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. WiseTech Global may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, WiseTech Global produced sturdy free cash flow equating to 67% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that WiseTech Global has US$73.0m in net cash. And we liked the look of last year's 20% year-on-year EBIT growth. So is WiseTech Global's debt a risk? It doesn't seem so to us. Another factor that would give us confidence in WiseTech Global would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.

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.

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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.