Zillow Group (NASDAQ:ZG) May Not Be Profitable But It Seems To Be Managing Its Debt Just Fine, Anyway

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Zillow Group, Inc. (NASDAQ:ZG) makes use of debt. 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.

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What Is Zillow Group's Debt?

The image below, which you can click on for greater detail, shows that Zillow Group had debt of US$1.70b at the end of September 2022, a reduction from US$4.44b over a year. However, it does have US$3.49b in cash offsetting this, leading to net cash of US$1.79b.

A Look At Zillow Group's Liabilities

The latest balance sheet data shows that Zillow Group had liabilities of US$312.0m due within a year, and liabilities of US$1.81b falling due after that. On the other hand, it had cash of US$3.49b and US$158.0m worth of receivables due within a year. So it can boast US$1.52b more liquid assets than total liabilities.

It's good to see that Zillow Group has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Zillow Group has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Zillow Group 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.

Over 12 months, Zillow Group reported revenue of US$8.1b, which is a gain of 238%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is Zillow Group?

Although Zillow Group had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$4.1b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Keeping in mind its 238% revenue growth over the last year, we think there's a decent chance the company is on track. There's no doubt fast top line growth can cure all manner of ills, for a stock. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Zillow Group insider transactions.

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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