Is Skillsoft (NYSE:SKIL) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Skillsoft Corp. (NYSE:SKIL) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Skillsoft

How Much Debt Does Skillsoft Carry?

You can click the graphic below for the historical numbers, but it shows that Skillsoft had US$590.7m of debt in October 2024, down from US$625.5m, one year before. However, because it has a cash reserve of US$97.9m, its net debt is less, at about US$492.8m.

How Strong Is Skillsoft's Balance Sheet?

We can see from the most recent balance sheet that Skillsoft had liabilities of US$294.0m falling due within a year, and liabilities of US$639.1m due beyond that. Offsetting these obligations, it had cash of US$97.9m as well as receivables valued at US$102.5m due within 12 months. So its liabilities total US$732.6m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the US$121.9m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. After all, Skillsoft would likely require a major re-capitalisation if it had to pay its creditors today. 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 Skillsoft 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 Skillsoft had a loss before interest and tax, and actually shrunk its revenue by 3.8%, to US$535m. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Skillsoft produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable US$52m at the EBIT level. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the reality is that it is low on liquid assets relative to liabilities, and it lost US$336m in the last year. So we think buying this stock is risky. 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 instance, we've identified 2 warning signs for Skillsoft that you should be aware of.

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.