These 4 Measures Indicate That CrowdStrike Holdings (NASDAQ:CRWD) Is Using Debt Safely

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.' 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 should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for CrowdStrike Holdings

How Much Debt Does CrowdStrike Holdings Carry?

As you can see below, CrowdStrike Holdings had US$742.9m of debt, at April 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has US$3.70b in cash to offset that, meaning it has US$2.96b net cash.

A Look At CrowdStrike Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that CrowdStrike Holdings had liabilities of US$2.68b due within 12 months and liabilities of US$1.59b due beyond that. Offsetting this, it had US$3.70b in cash and US$702.9m in receivables that were due within 12 months. So it actually has US$132.1m more liquid assets than total liabilities.

Having regard to CrowdStrike Holdings' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$91.8b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, CrowdStrike Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

Although CrowdStrike Holdings made a loss at the EBIT level, last year, it was also good to see that it generated US$24m in EBIT over the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While CrowdStrike Holdings has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, CrowdStrike Holdings actually produced more free cash flow than EBIT over the last year. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case CrowdStrike Holdings has US$2.96b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 4,199% of that EBIT to free cash flow, bringing in US$1.0b. So is CrowdStrike Holdings's debt a risk? It doesn't seem so to us. 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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com