Is Kaltura (NASDAQ:KLTR) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Kaltura, Inc. (NASDAQ:KLTR) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Kaltura

What Is Kaltura's Net Debt?

The image below, which you can click on for greater detail, shows that Kaltura had debt of US$31.5m at the end of September 2023, a reduction from US$36.5m over a year. But on the other hand it also has US$69.2m in cash, leading to a US$37.7m net cash position.

How Strong Is Kaltura's Balance Sheet?

The latest balance sheet data shows that Kaltura had liabilities of US$127.0m due within a year, and liabilities of US$20.3m falling due after that. Offsetting this, it had US$69.2m in cash and US$21.9m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$56.3m.

Kaltura has a market capitalization of US$199.4m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, Kaltura 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 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.

In the last year Kaltura wasn't profitable at an EBIT level, but managed to grow its revenue by 4.4%, to US$175m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Kaltura?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Kaltura had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$19m of cash and made a loss of US$49m. But the saving grace is the US$37.7m on the balance sheet. That means it could keep spending at its current rate for more than two years. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Kaltura that you should be aware of.

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.