Is Expensify (NASDAQ:EXFY) Using Debt In A Risky Way?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Expensify, Inc. (NASDAQ:EXFY) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Expensify

What Is Expensify's Debt?

You can click the graphic below for the historical numbers, but it shows that Expensify had US$58.7m of debt in September 2023, down from US$67.1m, one year before. However, it does have US$89.1m in cash offsetting this, leading to net cash of US$30.4m.

A Look At Expensify's Liabilities

The latest balance sheet data shows that Expensify had liabilities of US$73.8m due within a year, and liabilities of US$43.5m falling due after that. Offsetting these obligations, it had cash of US$89.1m as well as receivables valued at US$18.7m due within 12 months. So it has liabilities totalling US$9.39m more than its cash and near-term receivables, combined.

Of course, Expensify has a market capitalization of US$135.6m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Expensify boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Expensify'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.

In the last year Expensify had a loss before interest and tax, and actually shrunk its revenue by 4.5%, to US$159m. That's not what we would hope to see.

So How Risky Is Expensify?

Although Expensify had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$3.1m. 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. 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. We've identified 3 warning signs with Expensify , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.