Would Corsair Gaming (NASDAQ:CRSR) Be Better Off With Less 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.' 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 can see that Corsair Gaming, Inc. (NASDAQ:CRSR) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Corsair Gaming

What Is Corsair Gaming's Debt?

As you can see below, Corsair Gaming had US$177.2m of debt at September 2024, down from US$222.7m a year prior. However, it also had US$58.9m in cash, and so its net debt is US$118.3m.

How Strong Is Corsair Gaming's Balance Sheet?

We can see from the most recent balance sheet that Corsair Gaming had liabilities of US$361.1m falling due within a year, and liabilities of US$228.7m due beyond that. Offsetting these obligations, it had cash of US$58.9m as well as receivables valued at US$178.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$352.8m.

Corsair Gaming has a market capitalization of US$995.7m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Corsair Gaming can strengthen its balance sheet over time. 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 had a loss before interest and tax, and actually shrunk its revenue by 8.4%, to US$1.3b. That's not what we would hope to see.

Caveat Emptor

Importantly, Corsair Gaming had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$44m 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. For example, we would not want to see a repeat of last year's loss of US$94m. 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.

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.