Is CrowdStrike Holdings (NASDAQ:CRWD) A Risky Investment?

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 CrowdStrike Holdings, Inc. (NASDAQ:CRWD) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for CrowdStrike Holdings

What Is CrowdStrike Holdings's Debt?

The chart below, which you can click on for greater detail, shows that CrowdStrike Holdings had US$741.4m in debt in April 2023; about the same as the year before. However, its balance sheet shows it holds US$2.93b in cash, so it actually has US$2.19b net cash.

How Strong Is CrowdStrike Holdings' Balance Sheet?

We can see from the most recent balance sheet that CrowdStrike Holdings had liabilities of US$2.08b falling due within a year, and liabilities of US$1.42b due beyond that. Offsetting this, it had US$2.93b in cash and US$461.1m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$112.7m.

This state of affairs indicates that CrowdStrike Holdings' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$36.5b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, CrowdStrike Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine CrowdStrike Holdings'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.

In the last year CrowdStrike Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 49%, to US$2.4b. Shareholders probably have their fingers crossed that it can grow its way to profits.

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$745m. 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. The good news for CrowdStrike Holdings shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 2 warning signs for CrowdStrike Holdings you should be aware of.

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.