Does ChargePoint Holdings (NYSE:CHPT) Have A Healthy Balance Sheet?

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. As with many other companies ChargePoint Holdings, Inc. (NYSE:CHPT) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. 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 ChargePoint Holdings

What Is ChargePoint Holdings's Net Debt?

The chart below, which you can click on for greater detail, shows that ChargePoint Holdings had US$284.7m in debt in April 2024; about the same as the year before. However, it does have US$261.9m in cash offsetting this, leading to net debt of about US$22.8m.

How Healthy Is ChargePoint Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ChargePoint Holdings had liabilities of US$327.8m due within 12 months and liabilities of US$445.5m due beyond that. Offsetting this, it had US$261.9m in cash and US$117.8m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$393.7m.

ChargePoint Holdings has a market capitalization of US$706.0m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if ChargePoint Holdings can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year ChargePoint Holdings had a loss before interest and tax, and actually shrunk its revenue by 6.4%, to US$484m. We would much prefer see growth.

Caveat Emptor

Over the last twelve months ChargePoint Holdings produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable US$437m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$304m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for ChargePoint Holdings you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.

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