Is CrowdStrike Holdings (NASDAQ:CRWD) Weighed On By Its Debt Load?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. As with many other companies CrowdStrike Holdings, Inc. (NASDAQ:CRWD) makes use of debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

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What Is CrowdStrike Holdings's Debt?

As you can see below, CrowdStrike Holdings had US$740.3m of debt, at July 2022, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$2.32b in cash offsetting this, leading to net cash of US$1.58b.

How Healthy Is CrowdStrike Holdings' Balance Sheet?

We can see from the most recent balance sheet that CrowdStrike Holdings had liabilities of US$1.65b falling due within a year, and liabilities of US$1.26b due beyond that. Offsetting these obligations, it had cash of US$2.32b as well as receivables valued at US$418.8m due within 12 months. So it has liabilities totalling US$173.2m more than its cash and near-term receivables, combined.

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$33.5b 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. The balance sheet is clearly the area to focus on when you are analysing debt. 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.

In the last year CrowdStrike Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 61%, to US$1.8b. 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$543m. 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. One positive is that CrowdStrike Holdings is growing revenue apace, which makes it easier to sell a growth story and 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. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with CrowdStrike Holdings .

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.