We Think Corsair Gaming (NASDAQ:CRSR) Has A Fair Chunk Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Corsair Gaming, Inc. (NASDAQ:CRSR) does carry debt. 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. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Corsair Gaming

How Much Debt Does Corsair Gaming Carry?

The image below, which you can click on for greater detail, shows that Corsair Gaming had debt of US$183.3m at the end of March 2024, a reduction from US$228.8m over a year. However, because it has a cash reserve of US$127.8m, its net debt is less, at about US$55.6m.

How Healthy Is Corsair Gaming's Balance Sheet?

According to the last reported balance sheet, Corsair Gaming had liabilities of US$342.1m due within 12 months, and liabilities of US$225.8m due beyond 12 months. Offsetting this, it had US$127.8m in cash and US$204.9m in receivables that were due within 12 months. So its liabilities total US$235.3m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Corsair Gaming has a market capitalization of US$1.17b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without 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 Corsair Gaming'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 Corsair Gaming wasn't profitable at an EBIT level, but managed to grow its revenue by 7.0%, to US$1.4b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Corsair Gaming produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$1.6m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of US$8.3m into a profit. So to be blunt we do think it is risky. For riskier companies like Corsair Gaming I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.

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