Is nCino (NASDAQ:NCNO) A Risky Investment?

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. Importantly, nCino, Inc. (NASDAQ:NCNO) does carry debt. But the real question is whether this debt is making the company risky.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is nCino's Debt?

You can click the graphic below for the historical numbers, but it shows that as of October 2024 nCino had US$166.0m of debt, an increase on none, over one year. But on the other hand it also has US$257.9m in cash, leading to a US$91.9m net cash position.

A Look At nCino's Liabilities

According to the last reported balance sheet, nCino had liabilities of US$178.9m due within 12 months, and liabilities of US$244.2m due beyond 12 months. Offsetting these obligations, it had cash of US$257.9m as well as receivables valued at US$65.0m due within 12 months. So its liabilities total US$100.2m more than the combination of its cash and short-term receivables.

Given nCino has a market capitalization of US$3.36b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, nCino also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if nCino can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

View our latest analysis for nCino

In the last year nCino wasn't profitable at an EBIT level, but managed to grow its revenue by 13%, to US$523m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is nCino?

While nCino lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$71m. 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 1 warning sign for nCino that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.