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

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 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?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Corsair Gaming

What Is Corsair Gaming's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Corsair Gaming had US$180.3m of debt in June 2024, down from US$227.6m, one year before. However, because it has a cash reserve of US$92.2m, its net debt is less, at about US$88.1m.

How Healthy Is Corsair Gaming's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Corsair Gaming had liabilities of US$322.7m due within 12 months and liabilities of US$237.1m due beyond that. On the other hand, it had cash of US$92.2m and US$188.6m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$279.1m.

While this might seem like a lot, it is not so bad since Corsair Gaming has a market capitalization of US$679.0m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. 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's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Over the last twelve months Corsair Gaming produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$24m 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$10m of cash over the last year. So suffice it to say we do consider the stock to be risky. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Corsair Gaming's profit, revenue, and operating cashflow have changed over the last few years.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.