Is E2open Parent Holdings (NYSE:ETWO) Weighed On By Its Debt Load?

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.' 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. We note that E2open Parent Holdings, Inc. (NYSE:ETWO) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 step when considering a company's debt levels is to consider its cash and debt together.

View 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 February 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$135.4m, its net debt is less, at about US$913.5m.

How Strong Is E2open Parent Holdings' Balance Sheet?

The latest balance sheet data shows that E2open Parent Holdings had liabilities of US$339.0m due within a year, and liabilities of US$1.22b falling due after that. Offsetting this, it had US$135.4m in cash and US$166.3m in receivables that were due within 12 months. So it has liabilities totalling US$1.25b more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of US$1.50b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. 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 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.

In the last year E2open Parent Holdings had a loss before interest and tax, and actually shrunk its revenue by 2.7%, to US$635m. We would much prefer see growth.

Caveat Emptor

Importantly, E2open Parent Holdings had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$38m at the EBIT level. 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. We would feel better if it turned its trailing twelve month loss of US$1.1b into a profit. So to be blunt we do think it is risky. 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 instance, we've identified 1 warning sign for E2open Parent Holdings that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com