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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies CrowdStrike Holdings, Inc. (NASDAQ:CRWD) makes use of debt. But the more important question is: how much risk is that debt creating?
When Is Debt Dangerous?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.
What Is CrowdStrike Holdings's Net Debt?
As you can see below, CrowdStrike Holdings had US$741.8m of debt, at July 2023, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$3.17b in cash offsetting this, leading to net cash of US$2.43b.
A Look At CrowdStrike Holdings' Liabilities
The latest balance sheet data shows that CrowdStrike Holdings had liabilities of US$2.23b due within a year, and liabilities of US$1.42b falling due after that. Offsetting this, it had US$3.17b in cash and US$539.5m in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.
Having regard to CrowdStrike Holdings' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$40.8b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, CrowdStrike Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! 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 CrowdStrike Holdings can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, CrowdStrike Holdings reported revenue of US$2.6b, which is a gain of 44%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.
So How Risky Is CrowdStrike Holdings?
Although CrowdStrike Holdings had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$798m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Keeping in mind its 44% 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. There's no doubt that we learn most about debt from the balance sheet. 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 CrowdStrike Holdings you should know about.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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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.