David Iben summed it up when he said, “Volatility is not a risk we care about. We care about avoiding permanent loss of capital.” When we think about how risky a company is, we look at ourselves always include the use of debt, because over-indebtedness can lead to ruin. We take note of that BILL Holdings, Inc. (NYSE:BILL) has debt on its balance sheet. But is this debt a problem for shareholders?

When is debt a problem?

Debt and other liabilities become risky for a company when it cannot easily meet those obligations, either through free cash flow or by raising capital at an attractive price. If the company can't meet its legal obligations to pay down debt, shareholders could end up with nothing. While this isn't all that common, we often see indebted companies permanently diluting their shareholders because lenders force them to raise capital at a distressed price. Of course, many companies use debt to finance their growth without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for BILL Holdings

How much is BILL Holdings' net debt?

As you can see below, BILL Holdings had $914.0 million in debt as of June 2024, down from $1.84 billion a year ago. However, the balance sheet shows that the company holds $1.59 billion in cash, so it actually has $673.5 million in net cash.

How strong is BILL Holdings' balance sheet?

Zooming in on the latest balance sheet data, we can see that BILL Holdings had liabilities of US$4.06b due within 12 months and liabilities of US$981.6m due. which were due beyond that. Offsetting this, it had US$1.59b in cash and US$736.1m in receivables that were due within 12 months. So its liabilities exceed the sum of its cash and (near-term) receivables by US$2.72b.

This deficit isn't that bad since BILL Holdings is worth US$5.92 billion, so it could probably raise enough capital to support its balance sheet if needed. But we definitely want to keep an eye out for signs that the company's debt poses too much risk. Despite its significant liabilities, BILL Holdings has net cash, so it's fair to say that the company doesn't have a large debt load! There is no doubt that the balance sheet is where we learn the most about debt. However, the company's future profitability will ultimately determine whether BILL 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.

Last year, BILL Holdings wasn't profitable at the EBIT level, but it managed to grow its revenue by 22% to $1.3 billion. Shareholders are probably keeping their fingers crossed that the company can grow into profitability.

So how risky is BILL Holdings?

While BILL Holdings lost money at the earnings before interest and tax (EBIT) level, the company actually generated positive free cash flow of US$258m. So if we take this at face value and consider the net cash situation, we don't think the stock is too risky in the short term. On the positive side, BILL Holdings is growing its revenue quickly, making it easier to sell a growth story and raise capital when needed. However, that doesn't change our opinion that the stock is risky. The balance sheet is clearly the area you should focus on when analyzing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For this purpose, you should inform yourself about the 2 warning signs We noticed BILL Holdings (including 1, which is a bit worrying).

If you're the kind of investor who prefers buying stocks without the burden of debt, then don't hesitate to explore our exclusive list of net cash growth stocks today.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any stocks mentioned.