Is Workiva (NYSE:WK) Using Debt In A Risky Way?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Workiva Inc. (NYSE:WK) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Workiva

What Is Workiva's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2022 Workiva had US$340.3m of debt, an increase on US$298.7m, over one year. But on the other hand it also has US$430.8m in cash, leading to a US$90.5m net cash position.

How Strong Is Workiva's Balance Sheet?

According to the last reported balance sheet, Workiva had liabilities of US$406.9m due within 12 months, and liabilities of US$406.7m due beyond 12 months. On the other hand, it had cash of US$430.8m and US$113.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$269.9m.

Since publicly traded Workiva shares are worth a total of US$4.66b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Workiva also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Workiva's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Workiva wasn't profitable at an EBIT level, but managed to grow its revenue by 21%, to US$538m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Workiva?

While Workiva lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$7.7m. 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. The good news for Workiva shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But that doesn't change our opinion that the stock is risky. There's no doubt that we learn most about debt from the balance sheet. 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 2 warning signs for Workiva 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.