Is E2open Parent Holdings (NYSE:ETWO) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that E2open Parent Holdings, Inc. (NYSE:ETWO) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for E2open Parent Holdings

What Is E2open Parent Holdings's Net Debt?

As you can see below, E2open Parent Holdings had US$1.05b of debt, at August 2024, which is about the same as the year before. You can click the chart for greater detail. However, because it has a cash reserve of US$142.2m, its net debt is less, at about US$903.5m.

How Strong Is E2open Parent Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that E2open Parent Holdings had liabilities of US$298.8m due within 12 months and liabilities of US$1.19b due beyond that. Offsetting this, it had US$142.2m in cash and US$120.9m in receivables that were due within 12 months. So its liabilities total US$1.23b more than the combination of its cash and short-term receivables.

When you consider that this deficiency exceeds the company's US$940.5m market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine E2open Parent Holdings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year E2open Parent Holdings had a loss before interest and tax, and actually shrunk its revenue by 4.7%, to US$619m. 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. Indeed, it lost US$35m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of US$778m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. 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. Be aware that E2open Parent Holdings is showing 1 warning sign in our investment analysis , you should know about...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.