Elastic (NYSE:ESTC) Has Debt But No Earnings; Should You Worry?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Elastic N.V. (NYSE:ESTC) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

What Is Elastic's Net Debt?

As you can see below, Elastic had US$569.7m of debt, at April 2025, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$1.40b in cash, so it actually has US$827.5m net cash.

How Healthy Is Elastic's Balance Sheet?

The latest balance sheet data shows that Elastic had liabilities of US$1.01b due within a year, and liabilities of US$657.4m falling due after that. Offsetting these obligations, it had cash of US$1.40b as well as receivables valued at US$375.6m due within 12 months. So it can boast US$107.3m more liquid assets than total liabilities.

Having regard to Elastic'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$8.53b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Elastic has more cash than debt is arguably a good indication that 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 Elastic 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.

Check out our latest analysis for Elastic

Over 12 months, Elastic reported revenue of US$1.5b, which is a gain of 17%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Elastic?

While Elastic lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$262m. 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. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. For example - Elastic has 1 warning sign we think you should be aware of.

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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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.