Does CyberArk Software (NASDAQ:CYBR) Have A Healthy Balance Sheet?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, CyberArk Software Ltd. (NASDAQ:CYBR) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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.

See our latest analysis for CyberArk Software

How Much Debt Does CyberArk Software Carry?

The image below, which you can click on for greater detail, shows that at December 2022 CyberArk Software had debt of US$569.3m, up from US$520.1m in one year. But it also has US$954.3m in cash to offset that, meaning it has US$384.9m net cash.

How Strong Is CyberArk Software's Balance Sheet?

The latest balance sheet data shows that CyberArk Software had liabilities of US$452.5m due within a year, and liabilities of US$688.8m falling due after that. Offsetting these obligations, it had cash of US$954.3m as well as receivables valued at US$120.8m due within 12 months. So it has liabilities totalling US$66.2m more than its cash and near-term receivables, combined.

This state of affairs indicates that CyberArk Software's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$5.43b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, CyberArk Software 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 CyberArk Software'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.

Over 12 months, CyberArk Software reported revenue of US$592m, which is a gain of 18%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is CyberArk Software?

Although CyberArk Software had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$37m. 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. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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 instance, we've identified 2 warning signs for CyberArk Software that you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.