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Is Fiverr International (NYSE:FVRR) Using Too Much Debt?

Simply Wall St
·4 min read

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Fiverr International Ltd. (NYSE:FVRR) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Fiverr International

How Much Debt Does Fiverr International Carry?

As you can see below, Fiverr International had US$4.67m of debt at September 2020, down from US$5.89m a year prior. However, it does have US$214.4m in cash offsetting this, leading to net cash of US$209.7m.

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

How Strong Is Fiverr International's Balance Sheet?

We can see from the most recent balance sheet that Fiverr International had liabilities of US$126.8m falling due within a year, and liabilities of US$4.15m due beyond that. Offsetting this, it had US$214.4m in cash and US$4.07m in receivables that were due within 12 months. So it can boast US$87.5m more liquid assets than total liabilities.

This state of affairs indicates that Fiverr International's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$7.04b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Fiverr International has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Fiverr International'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.

Over 12 months, Fiverr International reported revenue of US$163m, which is a gain of 66%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Fiverr International?

Although Fiverr International had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$6.1m. 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. We think its revenue growth of 66% is a good sign. We'd see further strong growth as an optimistic indication. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Fiverr International , 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.

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. 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.

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