Does Meta Platforms (NASDAQ:META) 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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Meta Platforms, Inc. (NASDAQ:META) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 Meta Platforms

How Much Debt Does Meta Platforms Carry?

The chart below, which you can click on for greater detail, shows that Meta Platforms had US$18.4b in debt in June 2024; about the same as the year before. However, it does have US$58.1b in cash offsetting this, leading to net cash of US$39.7b.

How Strong Is Meta Platforms' Balance Sheet?

The latest balance sheet data shows that Meta Platforms had liabilities of US$27.0b due within a year, and liabilities of US$46.5b falling due after that. Offsetting these obligations, it had cash of US$58.1b as well as receivables valued at US$14.5b due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Meta Platforms' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$1.30t company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Meta Platforms boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Meta Platforms has boosted its EBIT by 81%, thus reducing the spectre of future debt repayments. 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 Meta Platforms'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 Meta Platforms 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. Over the last three years, Meta Platforms recorded free cash flow worth a fulsome 81% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Meta Platforms has US$39.7b in net cash. The cherry on top was that in converted 81% of that EBIT to free cash flow, bringing in US$50b. So we don't think Meta Platforms's use of debt is risky. 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 1 warning sign for Meta Platforms you should know about.

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.