Does Skillz (NYSE:SKLZ) Have A Healthy Balance Sheet?

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.' 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. We note that Skillz Inc. (NYSE:SKLZ) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Skillz

How Much Debt Does Skillz Carry?

The chart below, which you can click on for greater detail, shows that Skillz had US$125.2m in debt in September 2024; about the same as the year before. But on the other hand it also has US$301.4m in cash, leading to a US$176.2m net cash position.

A Look At Skillz's Liabilities

Zooming in on the latest balance sheet data, we can see that Skillz had liabilities of US$55.5m due within 12 months and liabilities of US$135.2m due beyond that. On the other hand, it had cash of US$301.4m and US$5.27m worth of receivables due within a year. So it can boast US$116.0m more liquid assets than total liabilities.

This surplus liquidity suggests that Skillz's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Skillz boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Skillz 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.

In the last year Skillz had a loss before interest and tax, and actually shrunk its revenue by 37%, to US$106m. That makes us nervous, to say the least.

So How Risky Is Skillz?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Skillz had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$2.3m and booked a US$37m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$176.2m. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. We've identified 3 warning signs with Skillz (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

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.