David Iben put it well when he said, “Volatility is not a risk we care about. What matters to us is that we avoid permanent capital loss.’ 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. We notice that BILL Holdings, Inc. (NYSE:BILL) has debt on its balance sheet. But is this debt a concern for shareholders?

When is debt a problem?

Debt and other liabilities become risky for a company when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. If the company can’t meet its legal obligations to repay debt, shareholders could end up walking away with nothing. While not too common, we often see indebted companies permanently diluting shareholders because lenders force them to raise capital at a difficult price. Of course, many companies use debt to finance growth without negative consequences. The first step in assessing a company’s debt levels is to look at its cash and debt together.

Check out our latest analysis for BILL Holdings

What is BILL Holdings’ net debt?

As you can see below, BILL Holdings had $914.0 million in debt as of June 2024, up from $1.84 million a year earlier. 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 beyond that. Offsetting this, the company had US$1.59b in cash and US$736.1m in receivables due within 12 months. So the company’s debt outweighs the sum of its cash and receivables (near-term) by more than $2.72 billion.

This shortfall isn’t a big deal because BILL Holdings is worth $5.92 billion, so it could likely raise enough capital to shore up its balance sheet if needed. But we certainly want to keep our eyes open for indications that the country’s debt poses too many risks. Despite its notable liabilities, BILL Holdings has net cash flow, so it’s safe to say it doesn’t have a heavy debt load! There’s no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide 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 interesting.

Over the past year, BILL Holdings was not profitable at EBIT level, but managed to grow its revenue by 22% to $1.3 billion. Shareholders are probably keeping their fingers crossed that it can claw its way to profits.

So how risky is BILL Holdings?

While BILL Holdings lost money at the earnings before interest and tax (EBIT) level, it actually generated positive free cash flow of $258 million. So taking that at face value, and given the net cash situation, we don’t think the stock is too risky in the short term. On the plus side, BILL Holdings is growing revenue quickly, which makes it easier to sell a growth story and raise capital if necessary. But that doesn’t change our view that the stock is risky. The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, every company can manage risks that exist off the balance sheet. To that end, you need to learn more about the 2 warning signs we’ve seen it with BILL Holdings (including 1 that’s a bit concerning).

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 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 is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.