Despite Lacking Profits Lightspeed Commerce (TSE:LSPD) Seems To Be On Top Of Its Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Lightspeed Commerce Inc. (TSE:LSPD) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

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What Is Lightspeed Commerce's Debt?

The chart below, which you can click on for greater detail, shows that Lightspeed Commerce had US$29.9m in debt in June 2022; about the same as the year before. But on the other hand it also has US$914.8m in cash, leading to a US$884.9m net cash position.

How Strong Is Lightspeed Commerce's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Lightspeed Commerce had liabilities of US$181.0m due within 12 months and liabilities of US$28.2m due beyond that. Offsetting this, it had US$914.8m in cash and US$41.7m in receivables that were due within 12 months. So it can boast US$747.3m more liquid assets than total liabilities.

It's good to see that Lightspeed Commerce has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Lightspeed Commerce 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 Lightspeed Commerce'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.

In the last year Lightspeed Commerce wasn't profitable at an EBIT level, but managed to grow its revenue by 101%, to US$606m. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is Lightspeed Commerce?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Lightspeed Commerce had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$119m of cash and made a loss of US$340m. While this does make the company a bit risky, it's important to remember it has net cash of US$884.9m. That means it could keep spending at its current rate for more than two years. Importantly, Lightspeed Commerce'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. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Lightspeed Commerce you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.