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.' 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. As with many other companies ThredUp Inc. (NASDAQ:TDUP) makes use of debt. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is ThredUp's Debt?

You can click the graphic below for the historical numbers, but it shows that ThredUp had US$19.1m of debt in September 2025, down from US$23.0m, one year before. But on the other hand it also has US$51.1m in cash, leading to a US$32.0m net cash position.

How Strong Is ThredUp's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ThredUp had liabilities of US$65.5m due within 12 months and liabilities of US$47.9m due beyond that. On the other hand, it had cash of US$51.1m and US$3.73m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$58.6m.

Given ThredUp has a market capitalization of US$760.9m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, ThredUp 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 ThredUp's ability to maintain a healthy balance sheet going forward.

In the last year ThredUp wasn't profitable at an EBIT level, but managed to grow its revenue by 42%, to US$298m. With any luck the company will be able to grow its way to profitability.

So How Risky Is ThredUp?

While ThredUp lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$2.0m. 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. One positive is that ThredUp is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But that doesn't change our opinion that the stock is risky. 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.

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.

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.