We Think Envestnet (NYSE:ENV) Has A Fair Chunk Of Debt

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, Envestnet, Inc. (NYSE:ENV) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Envestnet

How Much Debt Does Envestnet Carry?

As you can see below, Envestnet had US$852.6m of debt, at September 2022, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has US$241.3m in cash leading to net debt of about US$611.3m.

How Strong Is Envestnet's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Envestnet had liabilities of US$616.3m due within 12 months and liabilities of US$646.7m due beyond that. On the other hand, it had cash of US$241.3m and US$103.9m worth of receivables due within a year. So it has liabilities totalling US$917.7m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Envestnet has a market capitalization of US$3.68b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. 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 Envestnet 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 Envestnet wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to US$1.3b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Envestnet produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$5.2m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of US$50m. So we do think this stock is quite risky. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Envestnet's profit, revenue, and operating cashflow have changed over the last few years.

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.

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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.