Is Holdings (NYSE:BILL) Weighed On By Its Debt Load?

Simply Wall St
April 13, 2022
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Warren Buffett famously said, '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. Importantly, Holdings, Inc. (NYSE:BILL) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. 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 Holdings

What Is Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2021 Holdings had debt of US$1.77b, up from US$888.4m in one year. However, its balance sheet shows it holds US$2.79b in cash, so it actually has US$1.02b net cash.

NYSE:BILL Debt to Equity History April 13th 2022

How Healthy Is Holdings' Balance Sheet?

We can see from the most recent balance sheet that Holdings had liabilities of US$4.67b falling due within a year, and liabilities of US$752.4m due beyond that. Offsetting this, it had US$2.79b in cash and US$248.8m in receivables that were due within 12 months. So it has liabilities totalling US$2.38b more than its cash and near-term receivables, combined.

Given Holdings has a humongous market capitalization of US$20.8b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, 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 Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 125%, to US$413m. So there's no doubt that shareholders are cheering for growth

So How Risky Is Holdings?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Holdings lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$32m and booked a US$223m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$1.02b. That means it could keep spending at its current rate for more than two years. The good news for shareholders is that Holdings has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 4 warning signs we've spotted with Holdings .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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