Health Check: How Prudently Does CyberArk Software (NASDAQ:CYBR) Use Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, CyberArk Software Ltd. (NASDAQ:CYBR) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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.

View our latest analysis for CyberArk Software

What Is CyberArk Software's Net Debt?

The chart below, which you can click on for greater detail, shows that CyberArk Software had US$511.1m in debt in June 2021; about the same as the year before. But on the other hand it also has US$976.1m in cash, leading to a US$465.0m net cash position.

How Healthy Is CyberArk Software's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CyberArk Software had liabilities of US$272.3m due within 12 months and liabilities of US$617.8m due beyond that. On the other hand, it had cash of US$976.1m and US$76.0m worth of receivables due within a year. So it can boast US$161.9m more liquid assets than total liabilities.

This surplus suggests that CyberArk Software has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that CyberArk Software has more cash than debt is arguably a good indication that it can manage its debt safely. 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 CyberArk Software 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.

Over 12 months, CyberArk Software reported revenue of US$481m, which is a gain of 6.7%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is CyberArk Software?

While CyberArk Software lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$94m. 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. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for CyberArk Software that you should be aware of before investing here.

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.

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.

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