Does Coupang (NYSE:CPNG) 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.' 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. As with many other companies Coupang, Inc. (NYSE:CPNG) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Coupang

How Much Debt Does Coupang Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Coupang had US$1.14b of debt, an increase on US$723.4m, over one year. But it also has US$4.89b in cash to offset that, meaning it has US$3.75b net cash.

How Healthy Is Coupang's Balance Sheet?

The latest balance sheet data shows that Coupang had liabilities of US$6.51b due within a year, and liabilities of US$2.13b falling due after that. Offsetting these obligations, it had cash of US$4.89b as well as receivables valued at US$285.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$3.46b.

Since publicly traded Coupang shares are worth a very impressive total of US$26.8b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Coupang also has more cash than debt, so we're pretty confident it can manage its debt safely.

It was also good to see that despite losing money on the EBIT line last year, Coupang turned things around in the last 12 months, delivering and EBIT of US$425m. 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 Coupang 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Coupang may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last year, Coupang actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While Coupang does have more liabilities than liquid assets, it also has net cash of US$3.75b. And it impressed us with free cash flow of US$1.8b, being 433% of its EBIT. So we don't think Coupang's use of debt is risky. We'd be motivated to research the stock further if we found out that Coupang insiders have bought shares recently. If you would too, then you're in luck, since today we're sharing our list of reported insider transactions for free.

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.