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 CyberArk Software Ltd. (NASDAQ:CYBR) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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, 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 CyberArk Software

How Much Debt Does CyberArk Software Carry?

The chart below, which you can click on for greater detail, shows that CyberArk Software had US$570.8m in debt in June 2023; about the same as the year before. But on the other hand it also has US$905.1m in cash, leading to a US$334.3m net cash position.

A Look At CyberArk Software's Liabilities

Zooming in on the latest balance sheet data, we can see that CyberArk Software had liabilities of US$460.9m due within 12 months and liabilities of US$675.4m due beyond that. Offsetting this, it had US$905.1m in cash and US$105.5m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$125.7m.

This state of affairs indicates that CyberArk Software's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$6.51b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, CyberArk Software also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if CyberArk Software 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 CyberArk Software wasn't profitable at an EBIT level, but managed to grow its revenue by 21%, to US$659m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is CyberArk Software?

While CyberArk Software lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$22m. 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. One positive is that CyberArk Software is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But we still think it's somewhat risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for CyberArk Software that you should be aware of.

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. 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.