Clearwater Analytics Holdings (NYSE:CWAN) Has A Rock Solid Balance Sheet

Warren Buffett famously said, '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. As with many other companies Clearwater Analytics Holdings, Inc. (NYSE:CWAN) makes use of debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. 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.

What Is Clearwater Analytics Holdings's Net Debt?

As you can see below, Clearwater Analytics Holdings had US$45.2m of debt at March 2025, down from US$47.9m a year prior. But it also has US$282.9m in cash to offset that, meaning it has US$237.6m net cash.

A Look At Clearwater Analytics Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that Clearwater Analytics Holdings had liabilities of US$83.0m due within 12 months and liabilities of US$59.8m due beyond that. On the other hand, it had cash of US$282.9m and US$114.5m worth of receivables due within a year. So it can boast US$254.6m more liquid assets than total liabilities.

This surplus suggests that Clearwater Analytics Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Clearwater Analytics Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Clearwater Analytics Holdings

Although Clearwater Analytics Holdings made a loss at the EBIT level, last year, it was also good to see that it generated US$26m in EBIT over the last twelve months. 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 Clearwater Analytics 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Clearwater Analytics Holdings has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last year, Clearwater Analytics Holdings actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Clearwater Analytics Holdings has US$237.6m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$83m, being 315% of its EBIT. So is Clearwater Analytics Holdings's debt a risk? It doesn't seem so to us. 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. For example, we've discovered 2 warning signs for Clearwater Analytics Holdings that you should be aware of before investing here.

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.