Does WANdisco (LON:WAND) Have A Healthy Balance Sheet?
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 WANdisco plc (LON:WAND) does use debt in its business. But is this debt a concern to shareholders?
When Is Debt A Problem?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for WANdisco
What Is WANdisco's Net Debt?
As you can see below, WANdisco had US$4.09m of debt at December 2018, down from US$4.29m a year prior. But it also has US$10.8m in cash to offset that, meaning it has US$6.67m net cash.
How Strong Is WANdisco's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that WANdisco had liabilities of US$11.9m due within 12 months and liabilities of US$1.38m due beyond that. Offsetting these obligations, it had cash of US$10.8m as well as receivables valued at US$6.83m due within 12 months. So it can boast US$4.31m more liquid assets than total liabilities.
Having regard to WANdisco's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$320.0m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, WANdisco boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine WANdisco's ability to maintain a healthy balance sheet going forward. 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 WANdisco actually shrunk its revenue by 13%, to US$17m. We would much prefer see growth.
So How Risky Is WANdisco?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year WANdisco had negative earnings before interest and tax (EBIT), truth be told. And over the same period it saw negative free cash outflow of US$17m and booked a US$19m accounting loss. With only US$11m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. For riskier companies like WANdisco I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
