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Does Tenable Holdings (NASDAQ:TENB) Have A Healthy Balance Sheet?

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Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 can see that Tenable Holdings, Inc. (NASDAQ:TENB) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Tenable Holdings

What Is Tenable Holdings's Debt?

The image below, which you can click on for greater detail, shows that at March 2022 Tenable Holdings had debt of US$366.7m, up from none in one year. But it also has US$526.1m in cash to offset that, meaning it has US$159.4m net cash.

debt-equity-history-analysis
debt-equity-history-analysis

How Healthy Is Tenable Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Tenable Holdings had liabilities of US$463.8m due within 12 months and liabilities of US$547.1m due beyond that. Offsetting these obligations, it had cash of US$526.1m as well as receivables valued at US$96.4m due within 12 months. So it has liabilities totalling US$388.4m more than its cash and near-term receivables, combined.

Since publicly traded Tenable Holdings shares are worth a total of US$5.12b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Tenable Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Tenable 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.

In the last year Tenable Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 25%, to US$577m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Tenable Holdings?

While Tenable Holdings lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$81m. 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. The good news for Tenable Holdings shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 4 warning signs with Tenable Holdings , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.