Does Workday (NASDAQ:WDAY) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Workday, Inc. (NASDAQ:WDAY) does have debt on its balance sheet. But is this debt a concern to shareholders?

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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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Workday Carry?

The chart below, which you can click on for greater detail, shows that Workday had US$2.99b in debt in April 2025; about the same as the year before. But on the other hand it also has US$7.97b in cash, leading to a US$4.99b net cash position.

A Look At Workday's Liabilities

We can see from the most recent balance sheet that Workday had liabilities of US$4.82b falling due within a year, and liabilities of US$3.47b due beyond that. Offsetting these obligations, it had cash of US$7.97b as well as receivables valued at US$1.43b due within 12 months. So it actually has US$1.10b more liquid assets than total liabilities.

Having regard to Workday's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$61.1b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Workday boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Workday

Even more impressive was the fact that Workday grew its EBIT by 130% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. 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 Workday'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Workday may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, Workday actually produced more free cash flow than EBIT over the last two years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Workday has net cash of US$4.99b, as well as more liquid assets than liabilities. The cherry on top was that in converted 475% of that EBIT to free cash flow, bringing in US$2.3b. So we don't think Workday's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. 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 2 warning signs for Workday you should know about.

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.