Is Zeta Global Holdings (NYSE:ZETA) Using Too Much Debt?

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.' 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 note that Zeta Global Holdings Corp. (NYSE:ZETA) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Zeta Global Holdings

What Is Zeta Global Holdings's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Zeta Global Holdings had US$196.1m of debt, an increase on US$184.0m, over one year. However, it does have US$418.5m in cash offsetting this, leading to net cash of US$222.4m.

A Look At Zeta Global Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that Zeta Global Holdings had liabilities of US$190.9m due within 12 months and liabilities of US$203.3m due beyond that. Offsetting this, it had US$418.5m in cash and US$203.7m in receivables that were due within 12 months. So it actually has US$228.0m more liquid assets than total liabilities.

This short term liquidity is a sign that Zeta Global Holdings could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Zeta Global Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Zeta Global Holdings'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 Zeta Global Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 30%, to US$901m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Zeta Global Holdings?

While Zeta Global Holdings lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$79m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Keeping in mind its 30% revenue growth over the last year, we think there's a decent chance the company is on track. We'd see further strong growth as an optimistic indication. 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. For example - Zeta Global Holdings has 1 warning sign we think you should be aware of.

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.