3D Systems (NYSE:DDD) Is Carrying A Fair Bit Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies 3D Systems Corporation (NYSE:DDD) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for 3D Systems

How Much Debt Does 3D Systems Carry?

The chart below, which you can click on for greater detail, shows that 3D Systems had US$451.5m in debt in September 2023; about the same as the year before. On the flip side, it has US$445.6m in cash leading to net debt of about US$5.97m.

A Look At 3D Systems' Liabilities

We can see from the most recent balance sheet that 3D Systems had liabilities of US$137.9m falling due within a year, and liabilities of US$553.4m due beyond that. Offsetting this, it had US$445.6m in cash and US$104.5m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$141.2m.

This deficit isn't so bad because 3D Systems is worth US$661.8m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. But either way, 3D Systems has virtually no net debt, 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're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year 3D Systems had a loss before interest and tax, and actually shrunk its revenue by 9.0%, to US$506m. That's not what we would hope to see.

Caveat Emptor

Importantly, 3D Systems had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$89m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$114m of cash over the last year. So suffice it to say we consider the stock very risky. For riskier companies like 3D Systems I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

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.