Is Alarm.com Holdings (NASDAQ:ALRM) Using Too Much Debt?

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. We note that Alarm.com Holdings, Inc. (NASDAQ:ALRM) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Alarm.com Holdings's Net Debt?

The chart below, which you can click on for greater detail, shows that Alarm.com Holdings had US$986.5m in debt in June 2025; about the same as the year before. However, its balance sheet shows it holds US$1.03b in cash, so it actually has US$40.4m net cash.

How Strong Is Alarm.com Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Alarm.com Holdings had liabilities of US$662.3m due within 12 months and liabilities of US$583.9m due beyond that. Offsetting these obligations, it had cash of US$1.03b as well as receivables valued at US$122.3m due within 12 months. So its liabilities total US$97.0m more than the combination of its cash and short-term receivables.

Given Alarm.com Holdings has a market capitalization of US$2.61b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Alarm.com Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Alarm.com Holdings

In addition to that, we're happy to report that Alarm.com Holdings has boosted its EBIT by 35%, thus reducing the spectre of future debt repayments. 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 Alarm.com Holdings'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. Alarm.com Holdings 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. Happily for any shareholders, Alarm.com Holdings actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

We could understand if investors are concerned about Alarm.com Holdings's liabilities, but we can be reassured by the fact it has has net cash of US$40.4m. The cherry on top was that in converted 138% of that EBIT to free cash flow, bringing in US$161m. So is Alarm.com Holdings's debt a risk? It doesn't seem so to us. Another factor that would give us confidence in Alarm.com Holdings would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.

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.