Legendary fund manager Li Lu (whom Charlie Munger once backed) once said, “The greatest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. We can see that SailPoint Technologies Holdings, Inc. (NYSE: SAIL) uses debt in its operations. But does this debt worry shareholders?
When is debt a problem?
Debt helps a business until the business struggles to pay it back, either with new capital or with free cash flow. If things go really bad, lenders can take over the business. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. When we look at debt levels, we first consider cash and debt levels, together.
Check out our latest analysis for SailPoint Technologies Holdings
How much debt does SailPoint Technologies Holdings have?
The image below, which you can click on for more details, shows that as of December 2021, SailPoint Technologies Holdings had $385.2 million in debt, up from $326.7 million in one year. But on the other hand, he also has $435.4 million in cash, resulting in a net cash position of $50.3 million.
A look at the liabilities of SailPoint Technologies Holdings
According to the last published balance sheet, SailPoint Technologies Holdings had liabilities of $701.6 million due within 12 months and liabilities of $54.0 million due beyond 12 months. In compensation for these obligations, it had cash of US$435.4 million as well as receivables valued at US$179.3 million and maturing within 12 months. Thus, its liabilities outweigh the sum of its cash and receivables (current) by $140.9 million.
Given that SailPoint Technologies Holdings has a market cap of US$4.64 billion, it’s hard to believe that these liabilities pose a big threat. But there are enough liabilities that we certainly recommend that shareholders continue to monitor the balance sheet in the future. While it has liabilities worth noting, SailPoint Technologies Holdings also has more cash than debt, so we’re pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether SailPoint Technologies Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Last year, SailPoint Technologies Holdings was not profitable on an EBIT level, but managed to increase its revenue by 20%, to $439 million. The shareholders probably have their fingers crossed that she can make a profit.
So how risky is SailPoint Technologies Holdings?
Statistically speaking, businesses that lose money are riskier than those that make money. And the fact is that over the past twelve months, SailPoint Technologies Holdings has been losing money in earnings before interest and taxes (EBIT). And during the same period, it recorded a negative free cash outflow of US$5.1 million and recorded a book loss of US$62 million. With just $50.3 million on the balance sheet, it looks like it will soon have to raise capital again. With very solid revenue growth over the past year, SailPoint Technologies Holdings could be on the road to profitability. By investing before these profits, shareholders take on more risk in the hope of greater rewards. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks reside on the balance sheet, far from it. To do this, you need to find out about the 4 warning signs we spotted with SailPoint Technologies Holdings (including 1 that is significant).
In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeat present.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.