Is CoStar Group (NASDAQ:CSGP) Using Debt Sensibly?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 note that CoStar Group, Inc. (NASDAQ:CSGP) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

What Is CoStar Group's Net Debt?

As you can see below, CoStar Group had US$992.5m of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. But it also has US$3.94b in cash to offset that, meaning it has US$2.94b net cash.

How Strong Is CoStar Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CoStar Group had liabilities of US$742.4m due within 12 months and liabilities of US$1.16b due beyond that. Offsetting these obligations, it had cash of US$3.94b as well as receivables valued at US$211.1m due within 12 months. So it actually has US$2.24b more liquid assets than total liabilities.

This short term liquidity is a sign that CoStar Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, CoStar Group 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 it is future earnings, more than anything, that will determine CoStar Group'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.

View our latest analysis for CoStar Group

In the last year CoStar Group wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to US$2.9b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is CoStar Group?

While CoStar Group lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of US$104m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for CoStar Group you should know about.

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.