Is Stride (NYSE:LRN) Using Too Much Debt?

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.' 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. Importantly, Stride, Inc. (NYSE:LRN) does carry debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Stride's Debt?

The chart below, which you can click on for greater detail, shows that Stride had US$415.5m in debt in December 2024; about the same as the year before. But on the other hand it also has US$717.5m in cash, leading to a US$302.0m net cash position.

How Healthy Is Stride's Balance Sheet?

The latest balance sheet data shows that Stride had liabilities of US$230.7m due within a year, and liabilities of US$522.0m falling due after that. Offsetting this, it had US$717.5m in cash and US$582.5m in receivables that were due within 12 months. So it actually has US$547.4m more liquid assets than total liabilities.

This surplus suggests that Stride has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Stride has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Stride

On top of that, Stride grew its EBIT by 51% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Stride'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Stride has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Stride generated free cash flow amounting to a very robust 84% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Stride has net cash of US$302.0m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$260m, being 84% of its EBIT. So is Stride's debt a risk? It doesn't seem so to us. Another factor that would give us confidence in Stride would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.