Advertisement
U.S. markets closed
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • Dow 30

    39,807.40
    +47.29 (+0.12%)
     
  • Nasdaq

    16,379.46
    -20.06 (-0.12%)
     
  • Russell 2000

    2,124.55
    +10.20 (+0.48%)
     
  • Crude Oil

    83.11
    -0.06 (-0.07%)
     
  • Gold

    2,254.80
    +16.40 (+0.73%)
     
  • Silver

    25.10
    +0.18 (+0.74%)
     
  • EUR/USD

    1.0798
    +0.0005 (+0.04%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • GBP/USD

    1.2640
    +0.0018 (+0.14%)
     
  • USD/JPY

    151.1990
    -0.1730 (-0.11%)
     
  • Bitcoin USD

    70,545.62
    -232.53 (-0.33%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,369.44
    +201.37 (+0.50%)
     

Is Workiva (NYSE:WK) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Workiva Inc. (NYSE:WK) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Workiva

What Is Workiva's Debt?

The chart below, which you can click on for greater detail, shows that Workiva had US$298.7m in debt in December 2021; about the same as the year before. But on the other hand it also has US$530.4m in cash, leading to a US$231.8m net cash position.

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

How Strong Is Workiva's Balance Sheet?

The latest balance sheet data shows that Workiva had liabilities of US$646.5m due within a year, and liabilities of US$67.3m falling due after that. Offsetting these obligations, it had cash of US$530.4m as well as receivables valued at US$80.4m due within 12 months. So it has liabilities totalling US$102.9m more than its cash and near-term receivables, combined.

Having regard to Workiva's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$5.84b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Workiva boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Workiva's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Workiva reported revenue of US$443m, which is a gain of 26%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Workiva?

While Workiva lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$46m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. The good news for Workiva 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. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 4 warning signs for Workiva you should be aware of, and 1 of them is significant.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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.

Advertisement