Is Tenable Holdings (NASDAQ:TENB) Using Debt Sensibly?

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 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. As with many other companies Tenable Holdings, Inc. (NASDAQ:TENB) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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

See our latest analysis for Tenable Holdings

How Much Debt Does Tenable Holdings Carry?

As you can see below, Tenable Holdings had US$362.6m of debt, at September 2023, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$693.0m in cash, leading to a US$330.3m net cash position.

How Strong Is Tenable Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Tenable Holdings had liabilities of US$600.7m due within 12 months and liabilities of US$580.0m due beyond that. On the other hand, it had cash of US$693.0m and US$179.4m worth of receivables due within a year. So it has liabilities totalling US$308.4m more than its cash and near-term receivables, combined.

Since publicly traded Tenable Holdings shares are worth a total of US$5.57b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Tenable Holdings 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 Tenable Holdings'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 Tenable Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 19%, to US$770m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Tenable Holdings?

Although Tenable Holdings had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$132m. 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. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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 2 warning signs we've spotted with Tenable Holdings .

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.

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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.