Is Varonis Systems (NASDAQ:VRNS) Weighed On By Its Debt Load?

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, Varonis Systems, Inc. (NASDAQ:VRNS) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, 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 Varonis Systems

How Much Debt Does Varonis Systems Carry?

As you can see below, Varonis Systems had US$249.7m of debt, at June 2023, which is about the same as the year before. You can click the chart for greater detail. But it also has US$753.8m in cash to offset that, meaning it has US$504.0m net cash.

A Look At Varonis Systems' Liabilities

Zooming in on the latest balance sheet data, we can see that Varonis Systems had liabilities of US$254.8m due within 12 months and liabilities of US$311.4m due beyond that. On the other hand, it had cash of US$753.8m and US$103.7m worth of receivables due within a year. So it actually has US$291.2m more liquid assets than total liabilities.

This surplus suggests that Varonis Systems has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Varonis Systems 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 ultimately the future profitability of the business will decide if Varonis Systems 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.

In the last year Varonis Systems wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to US$489m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Varonis Systems?

While Varonis Systems lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$37m. 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 mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Varonis Systems is showing 2 warning signs in our investment analysis , you should know about...

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. 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.