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. We note that CyberArk Software Ltd. (NASDAQ:CYBR) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.
How Much Debt Does CyberArk Software Carry?
You can click the graphic below for the historical numbers, but it shows that as of March 2022 CyberArk Software had US$567.1m of debt, an increase on US$506.7m, over one year. However, it does have US$960.7m in cash offsetting this, leading to net cash of US$393.6m.
How Strong Is CyberArk Software's Balance Sheet?
We can see from the most recent balance sheet that CyberArk Software had liabilities of US$345.8m falling due within a year, and liabilities of US$696.1m due beyond that. Offsetting these obligations, it had cash of US$960.7m as well as receivables valued at US$76.4m due within 12 months. So these liquid assets roughly match the total liabilities.
Having regard to CyberArk Software's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$5.39b company is short on cash, but still worth keeping an eye on the 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. When analysing debt levels, the balance sheet is the obvious place to start. 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 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$518m, which is a gain of 10%, 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?
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$57m. 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. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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 instance, we've identified 2 warning signs for CyberArk Software that you should be aware of.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
What are the risks and opportunities for CyberArk Software?
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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.
CyberArk Software Ltd., together with its subsidiaries, develops, markets, and sales software-based security solutions and services in the United States, Europe, the Middle East, Africa, and internationally.
Mediocre balance sheet with concerning outlook.