Is Extreme Networks (NASDAQ:EXTR) Using Debt Sensibly?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 Extreme Networks, Inc. (NASDAQ:EXTR) does have debt on its balance sheet. But is this debt a concern to shareholders?

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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 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Extreme Networks's Debt?

You can click the graphic below for the historical numbers, but it shows that Extreme Networks had US$180.3m of debt in March 2025, down from US$189.9m, one year before. However, it does have US$185.5m in cash offsetting this, leading to net cash of US$5.18m.

A Look At Extreme Networks' Liabilities

The latest balance sheet data shows that Extreme Networks had liabilities of US$512.0m due within a year, and liabilities of US$489.4m falling due after that. Offsetting this, it had US$185.5m in cash and US$99.5m in receivables that were due within 12 months. So it has liabilities totalling US$716.3m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Extreme Networks has a market capitalization of US$2.41b, 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. While it does have liabilities worth noting, Extreme Networks also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Extreme Networks can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

See our latest analysis for Extreme Networks

Over 12 months, Extreme Networks made a loss at the EBIT level, and saw its revenue drop to US$1.1b, which is a fall of 11%. We would much prefer see growth.

So How Risky Is Extreme Networks?

Although Extreme Networks had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$63m. 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. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Extreme Networks insider transactions.

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.