SVMK (NASDAQ:SVMK) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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, SVMK Inc. (NASDAQ:SVMK) does carry debt. But the more important question is: how much risk is that debt creating?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for SVMK

How Much Debt Does SVMK Carry?

The chart below, which you can click on for greater detail, shows that SVMK had US$213.6m in debt in December 2020; about the same as the year before. However, it does have US$224.4m in cash offsetting this, leading to net cash of US$10.8m.

How Healthy Is SVMK's Balance Sheet?

We can see from the most recent balance sheet that SVMK had liabilities of US$230.8m falling due within a year, and liabilities of US$300.7m due beyond that. Offsetting these obligations, it had cash of US$224.4m as well as receivables valued at US$24.2m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$282.9m.

Since publicly traded SVMK shares are worth a total of US$2.69b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, SVMK 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 SVMK's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year SVMK wasn't profitable at an EBIT level, but managed to grow its revenue by 22%, to US$376m. With any luck the company will be able to grow its way to profitability.

So How Risky Is SVMK?

Although SVMK had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$46m. 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. One positive is that SVMK is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But that doesn't change our opinion that the stock is risky. 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. To that end, you should be aware of the 4 warning signs we've spotted with SVMK .

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. 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.
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