Is CrowdStrike Holdings (NASDAQ:CRWD) Using Too Much Debt?

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 more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we think about a company's use of debt, we first look at 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$739.5m in debt in January 2022; about the same as the year before. However, it does have US$2.00b in cash offsetting this, leading to net cash of US$1.26b.

How Strong Is CrowdStrike Holdings' Balance Sheet?

According to the last reported balance sheet, CrowdStrike Holdings had liabilities of US$1.41b due within 12 months, and liabilities of US$1.17b due beyond 12 months. Offsetting this, it had US$2.00b in cash and US$368.1m in receivables that were due within 12 months. So its liabilities total US$216.0m more than the combination of its cash and short-term receivables.

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$46.2b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, 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$1.5b, which is a gain of 66%, 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?

While CrowdStrike Holdings lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$441m. 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 that doesn't change our opinion that the stock is risky. 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. 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.

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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.