Does BILL Holdings (NYSE:BILL) Have A Healthy Balance Sheet?

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

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for BILL Holdings

What Is BILL Holdings's Debt?

The chart below, which you can click on for greater detail, shows that BILL Holdings had US$1.81b in debt in December 2022; about the same as the year before. However, it does have US$2.68b in cash offsetting this, leading to net cash of US$869.3m.

How Strong Is BILL Holdings' Balance Sheet?

We can see from the most recent balance sheet that BILL Holdings had liabilities of US$3.73b falling due within a year, and liabilities of US$1.92b due beyond that. Offsetting this, it had US$2.68b in cash and US$425.5m in receivables that were due within 12 months. So it has liabilities totalling US$2.55b more than its cash and near-term receivables, combined.

This deficit isn't so bad because BILL Holdings is worth US$8.34b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, BILL Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 BILL 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.

In the last year BILL Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 108%, to US$857m. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is BILL Holdings?

Although BILL Holdings had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$68m. 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. One positive is that BILL Holdings is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But that doesn't change our opinion that the stock is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for BILL Holdings you should be aware of.

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.

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.