Is Kaltura (NASDAQ:KLTR) Using Debt Sensibly?

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. We note that Kaltura, Inc. (NASDAQ:KLTR) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Kaltura

What Is Kaltura's Net Debt?

As you can see below, Kaltura had US$33.8m of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$68.9m in cash, leading to a US$35.1m net cash position.

How Healthy Is Kaltura's Balance Sheet?

According to the last reported balance sheet, Kaltura had liabilities of US$96.9m due within 12 months, and liabilities of US$51.0m due beyond 12 months. Offsetting these obligations, it had cash of US$68.9m as well as receivables valued at US$17.8m due within 12 months. So its liabilities total US$61.2m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Kaltura has a market capitalization of US$168.9m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, Kaltura boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Kaltura'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, Kaltura reported revenue of US$177m, which is a gain of 3.7%, 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 Kaltura?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Kaltura had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$5.0m and booked a US$45m accounting loss. But the saving grace is the US$35.1m on the balance sheet. That means it could keep spending at its current rate for more than two years. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. Be aware that Kaltura is showing 2 warning signs in our investment analysis , you should know about...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.