Is Synchronoss Technologies (NASDAQ:SNCR) Using Debt Sensibly?

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 Synchronoss Technologies, Inc. (NASDAQ:SNCR) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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, 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.

See our latest analysis for Synchronoss Technologies

What Is Synchronoss Technologies's Debt?

As you can see below, Synchronoss Technologies had US$135.4m of debt, at June 2023, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has US$19.3m in cash leading to net debt of about US$116.1m.

How Strong Is Synchronoss Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Synchronoss Technologies had liabilities of US$82.9m due within 12 months and liabilities of US$169.2m due beyond that. On the other hand, it had cash of US$19.3m and US$43.8m worth of receivables due within a year. So its liabilities total US$189.0m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the US$66.0m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Synchronoss Technologies would probably need a major re-capitalization if its creditors were to demand repayment. 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 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.

Over 12 months, Synchronoss Technologies made a loss at the EBIT level, and saw its revenue drop to US$239m, which is a fall of 13%. That's not what we would hope to see.

Caveat Emptor

While Synchronoss Technologies's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping US$9.2m. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it lost US$42m in just last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is quite risky. We'd prefer to pass. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with Synchronoss Technologies , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.