Is CrowdStrike Holdings (NASDAQ:CRWD) Using Debt In A Risky Way?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for CrowdStrike Holdings

What Is CrowdStrike Holdings's Debt?

As you can see below, CrowdStrike Holdings had US$742.1m of debt, at October 2023, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$3.17b in cash, leading to a US$2.42b net cash position.

How Healthy Is CrowdStrike Holdings' Balance Sheet?

The latest balance sheet data shows that CrowdStrike Holdings had liabilities of US$2.35b due within a year, and liabilities of US$1.42b falling due after that. On the other hand, it had cash of US$3.17b and US$561.9m worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

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$60.5b 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if CrowdStrike Holdings 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.

In the last year CrowdStrike Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 40%, to US$2.8b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is CrowdStrike Holdings?

While CrowdStrike Holdings lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$864m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - CrowdStrike Holdings has 2 warning signs we think you should be aware of.

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.