Varonis Systems (NASDAQ:VRNS) Is Carrying A Fair Bit Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that Varonis Systems, Inc. (NASDAQ:VRNS) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Varonis Systems Carry?

As you can see below, at the end of December 2024, Varonis Systems had US$700.8m of debt, up from US$250.5m a year ago. Click the image for more detail. However, because it has a cash reserve of US$570.7m, its net debt is less, at about US$130.1m.

A Look At Varonis Systems' Liabilities

According to the last reported balance sheet, Varonis Systems had liabilities of US$709.9m due within 12 months, and liabilities of US$498.7m due beyond 12 months. Offsetting this, it had US$570.7m in cash and US$236.6m in receivables that were due within 12 months. So its liabilities total US$401.3m more than the combination of its cash and short-term receivables.

Given Varonis Systems has a market capitalization of US$4.32b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 .

Check out our latest analysis for Varonis Systems

Over 12 months, Varonis Systems reported revenue of US$551m, which is a gain of 10%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Varonis Systems had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$111m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of US$96m. So to be blunt we do think it is risky. 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. For example, we've discovered 1 warning sign for Varonis Systems that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.