Is ANSYS (NASDAQ:ANSS) 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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, ANSYS, Inc. (NASDAQ:ANSS) does carry debt. But is this debt a concern to shareholders?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for ANSYS

How Much Debt Does ANSYS Carry?

The chart below, which you can click on for greater detail, shows that ANSYS had US$754.0m in debt in June 2024; about the same as the year before. But it also has US$1.12b in cash to offset that, meaning it has US$365.2m net cash.

A Look At ANSYS' Liabilities

The latest balance sheet data shows that ANSYS had liabilities of US$708.7m due within a year, and liabilities of US$1.02b falling due after that. Offsetting this, it had US$1.12b in cash and US$907.1m in receivables that were due within 12 months. So it can boast US$293.3m more liquid assets than total liabilities.

Having regard to ANSYS' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$28.1b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, ANSYS boasts net cash, so it's fair to say it does not have a heavy debt load!

While ANSYS doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine ANSYS's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While ANSYS has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, ANSYS actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to investigate a company's debt, in this case ANSYS has US$365.2m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$720m, being 106% of its EBIT. So is ANSYS's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in ANSYS, you may well want to click here to check an interactive graph of its earnings per share history.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.