Is Pure Storage (NYSE:PSTG) Using Too Much Debt?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Pure Storage, Inc. (NYSE:PSTG) makes use of debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is Pure Storage's Debt?

As you can see below, Pure Storage had US$100.0m of debt, at May 2025, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$1.58b in cash, so it actually has US$1.48b net cash.

How Strong Is Pure Storage's Balance Sheet?

We can see from the most recent balance sheet that Pure Storage had liabilities of US$1.49b falling due within a year, and liabilities of US$1.07b due beyond that. Offsetting these obligations, it had cash of US$1.58b as well as receivables valued at US$411.3m due within 12 months. So its liabilities total US$575.9m more than the combination of its cash and short-term receivables.

Given Pure Storage has a humongous market capitalization of US$18.0b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Pure Storage boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Pure Storage

In fact Pure Storage's saving grace is its low debt levels, because its EBIT has tanked 28% in the last twelve months. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Pure Storage's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Pure Storage has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, Pure Storage actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

We could understand if investors are concerned about Pure Storage's liabilities, but we can be reassured by the fact it has has net cash of US$1.48b. And it impressed us with free cash flow of US$566m, being 666% of its EBIT. So we don't have any problem with Pure Storage's use of debt. We'd be motivated to research the stock further if we found out that Pure Storage insiders have bought shares recently. If you would too, then you're in luck, since today we're sharing our list of reported insider transactions for free.

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.