3D Systems (NYSE:DDD) Has Debt But No Earnings; Should You Worry?

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 can see that 3D Systems Corporation (NYSE:DDD) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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, 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for 3D Systems

What Is 3D Systems's Net Debt?

As you can see below, at the end of June 2022, 3D Systems had US$448.1m of debt, up from none a year ago. Click the image for more detail. But it also has US$638.2m in cash to offset that, meaning it has US$190.1m net cash.

How Healthy Is 3D Systems' Balance Sheet?

The latest balance sheet data shows that 3D Systems had liabilities of US$162.4m due within a year, and liabilities of US$533.8m falling due after that. Offsetting these obligations, it had cash of US$638.2m as well as receivables valued at US$107.0m due within 12 months. So it can boast US$49.1m more liquid assets than total liabilities.

This short term liquidity is a sign that 3D Systems could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, 3D Systems boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if 3D Systems 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 3D Systems had a loss before interest and tax, and actually shrunk its revenue by 6.1%, to US$580m. That's not what we would hope to see.

So How Risky Is 3D Systems?

Although 3D Systems had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of US$227m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for 3D Systems (2 shouldn't be ignored!) that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.