Does Synchronoss Technologies (NASDAQ:SNCR) Have A Healthy Balance Sheet?

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.' 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, Synchronoss Technologies, Inc. (NASDAQ:SNCR) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

Check out our latest analysis for Synchronoss Technologies

How Much Debt Does Synchronoss Technologies Carry?

The image below, which you can click on for greater detail, shows that at September 2021 Synchronoss Technologies had debt of US$117.5m, up from US$10.0m in one year. However, it also had US$24.1m in cash, and so its net debt is US$93.4m.

A Look At Synchronoss Technologies' Liabilities

Zooming in on the latest balance sheet data, we can see that Synchronoss Technologies had liabilities of US$108.6m due within 12 months and liabilities of US$161.7m due beyond that. On the other hand, it had cash of US$24.1m and US$39.1m worth of receivables due within a year. So it has liabilities totalling US$207.1m more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of US$197.9m, we think shareholders really should watch Synchronoss Technologies's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Synchronoss Technologies'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 Synchronoss Technologies had a loss before interest and tax, and actually shrunk its revenue by 12%, to US$276m. We would much prefer see growth.

Caveat Emptor

Not only did Synchronoss Technologies's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable US$21m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of US$24m over the last twelve months. So suffice it to say we consider the stock to be risky. 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. To that end, you should learn about the 4 warning signs we've spotted with Synchronoss Technologies (including 1 which is concerning) .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.