Is Upwork (NASDAQ:UPWK) A Risky Investment?

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. Importantly, Upwork Inc. (NASDAQ:UPWK) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. 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 Upwork

What Is Upwork's Debt?

You can click the graphic below for the historical numbers, but it shows that Upwork had US$354.7m of debt in March 2023, down from US$562.0m, one year before. However, its balance sheet shows it holds US$509.6m in cash, so it actually has US$154.9m net cash.

How Healthy Is Upwork's Balance Sheet?

According to the last reported balance sheet, Upwork had liabilities of US$256.8m due within 12 months, and liabilities of US$372.3m due beyond 12 months. Offsetting this, it had US$509.6m in cash and US$59.3m in receivables that were due within 12 months. So it has liabilities totalling US$60.2m more than its cash and near-term receivables, combined.

Of course, Upwork has a market capitalization of US$1.43b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Upwork 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 Upwork 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.

Over 12 months, Upwork reported revenue of US$638m, which is a gain of 20%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Upwork?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Upwork had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$834k and booked a US$48m accounting loss. Given it only has net cash of US$154.9m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Upwork may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Upwork that you should be aware of.

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.