WiseTech Global (ASX:WTC) Has A Rock Solid Balance Sheet

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, WiseTech Global Limited (ASX:WTC) does carry debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does WiseTech Global Carry?

You can click the graphic below for the historical numbers, but it shows that WiseTech Global had US$30.0m of debt in December 2024, down from US$136.3m, one year before. However, its balance sheet shows it holds US$103.0m in cash, so it actually has US$73.0m net cash.

How Strong 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 its liabilities total US$185.2m more than the combination of its cash and short-term receivables.

This state of affairs indicates that WiseTech Global's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$23.6b company is struggling for cash, we still think it's worth monitoring its 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.

View our latest analysis for WiseTech Global

Also good is that WiseTech Global grew its EBIT at 20% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine WiseTech Global's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While WiseTech Global has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. 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 we don't think WiseTech Global's use of debt is risky. 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.

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. 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.