Stock Analysis

Does 8x8 (NASDAQ:EGHT) Have A Healthy Balance Sheet?

NasdaqGS:EGHT
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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies 8x8, Inc. (NASDAQ:EGHT) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for 8x8

How Much Debt Does 8x8 Carry?

As you can see below, 8x8 had US$471.9m of debt at December 2023, down from US$495.6m a year prior. However, it does have US$169.5m in cash offsetting this, leading to net debt of about US$302.4m.

debt-equity-history-analysis
NasdaqGS:EGHT Debt to Equity History April 16th 2024

How Healthy Is 8x8's Balance Sheet?

We can see from the most recent balance sheet that 8x8 had liabilities of US$230.5m falling due within a year, and liabilities of US$486.5m due beyond that. Offsetting these obligations, it had cash of US$169.5m as well as receivables valued at US$72.2m due within 12 months. So it has liabilities totalling US$475.3m more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the US$287.6m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, 8x8 would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if 8x8 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.

In the last year 8x8's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Importantly, 8x8 had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$5.0m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. For example, we would not want to see a repeat of last year's loss of US$53m. In the meantime, we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for 8x8 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.

Valuation is complex, but we're helping make it simple.

Find out whether 8x8 is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.