E2open Parent Holdings (NYSE:ETWO) Has Debt But No Earnings; Should You Worry?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that E2open Parent Holdings, Inc. (NYSE:ETWO) does use debt in its business. But the more important question is: how much risk is that debt creating?

We've discovered 1 warning sign about E2open Parent Holdings. View them for free.

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is E2open Parent Holdings's Net Debt?

As you can see below, E2open Parent Holdings had US$1.04b of debt, at November 2024, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has US$151.2m in cash leading to net debt of about US$892.8m.

A Look At E2open Parent Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that E2open Parent Holdings had liabilities of US$309.3m due within 12 months and liabilities of US$1.17b due beyond that. On the other hand, it had cash of US$151.2m and US$139.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.19b.

The deficiency here weighs heavily on the US$727.3m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, E2open Parent Holdings would likely require a major re-capitalisation if it had to pay its creditors today. 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 E2open Parent 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.

See our latest analysis for E2open Parent Holdings

Over 12 months, E2open Parent Holdings made a loss at the EBIT level, and saw its revenue drop to US$613m, which is a fall of 4.5%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months E2open Parent Holdings produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$36m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of US$458m. And until that time we think this is a risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for E2open Parent Holdings you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.