Is Tenable Holdings (NASDAQ:TENB) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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, Tenable Holdings, Inc. (NASDAQ:TENB) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Tenable Holdings

What Is Tenable Holdings's Net Debt?

The chart below, which you can click on for greater detail, shows that Tenable Holdings had US$363.3m in debt in June 2023; about the same as the year before. But it also has US$645.5m in cash to offset that, meaning it has US$282.2m net cash.

A Look At Tenable Holdings' Liabilities

According to the last reported balance sheet, Tenable Holdings had liabilities of US$577.1m due within 12 months, and liabilities of US$574.2m due beyond 12 months. Offsetting this, it had US$645.5m in cash and US$154.4m in receivables that were due within 12 months. So its liabilities total US$351.3m more than the combination of its cash and short-term receivables.

Since publicly traded Tenable Holdings shares are worth a total of US$5.18b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Tenable Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Tenable Holdings 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.

Over 12 months, Tenable Holdings reported revenue of US$743m, which is a gain of 22%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

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$123m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. The good news for Tenable Holdings shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Tenable Holdings (of which 1 is a bit concerning!) you should know about.

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.