Yahoo Finance Is CrowdStrike Holdings (NASDAQ:CRWD) Weighed On By Its Debt Load?
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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that CrowdStrike Holdings, Inc. (NASDAQ:CRWD) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
When Is Debt A Problem?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.
View our latest analysis for CrowdStrike Holdings
How Much Debt Does CrowdStrike Holdings Carry?
The chart below, which you can click on for greater detail, shows that CrowdStrike Holdings had US$741.8m in debt in July 2023; about the same as the year before. But it also has US$3.17b in cash to offset that, meaning it has US$2.43b net cash.
How Healthy Is CrowdStrike Holdings' Balance Sheet?
Zooming in on the latest balance sheet data, we can see that CrowdStrike Holdings had liabilities of US$2.23b due within 12 months and liabilities of US$1.42b due beyond that. Offsetting these obligations, it had cash of US$3.17b as well as receivables valued at US$539.5m due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.
This state of affairs indicates that CrowdStrike Holdings' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$46.9b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that CrowdStrike Holdings has more cash than debt is arguably a good indication that 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 CrowdStrike Holdings 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.
Over 12 months, CrowdStrike Holdings reported revenue of US$2.6b, which is a gain of 44%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is CrowdStrike Holdings?
Although CrowdStrike Holdings had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$798m. 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. Keeping in mind its 44% revenue growth over the last year, we think there's a decent chance the company is on track. There's no doubt fast top line growth can cure all manner of ills, for a stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for CrowdStrike Holdings you should know about.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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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.
