Does 3D Systems (NYSE:DDD) Have A Healthy Balance Sheet?

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.' 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. Importantly, 3D Systems Corporation (NYSE:DDD) does carry debt. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

View our latest analysis for 3D Systems

What Is 3D Systems's Debt?

The image below, which you can click on for greater detail, shows that at September 2022 3D Systems had debt of US$448.9m, up from none in one year. However, its balance sheet shows it holds US$609.4m in cash, so it actually has US$160.5m net cash.

A Look At 3D Systems' Liabilities

Zooming in on the latest balance sheet data, we can see that 3D Systems had liabilities of US$152.4m due within 12 months and liabilities of US$543.1m due beyond that. Offsetting these obligations, it had cash of US$609.4m as well as receivables valued at US$100.3m due within 12 months. So it can boast US$14.2m more liquid assets than total liabilities.

Having regard to 3D Systems' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$1.37b company is short on cash, but still worth keeping an eye on the balance sheet. 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 it is future earnings, more than anything, that will determine 3D Systems'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 3D Systems had a loss before interest and tax, and actually shrunk its revenue by 13%, to US$556m. We would much prefer see growth.

So How Risky Is 3D Systems?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months 3D Systems lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$88m and booked a US$104m accounting loss. Given it only has net cash of US$160.5m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for 3D Systems you should know about.

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.