Warren Buffett said: “Volatility is far from synonymous with risk. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. Like many other companies Lightspeed Commerce Inc. (EAST: LSPD) resorts to debt. But the real question is whether this debt makes the business risky.

Why is debt risky?

Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. If things go really bad, lenders can take over the business. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. When we think about a company’s use of debt, we first look at cash and debt together.

Check opportunities and risks within the CA software industry.

How much debt does Lightspeed Commerce have?

The graph below, which you can click on for more details, shows that Lightspeed Commerce had $29.9 million in debt as of June 2022; about the same as the previous year. But on the other hand, it also has $914.8 million in cash, resulting in a net cash position of $884.9 million.

How strong is Lightspeed Commerce’s balance sheet?

Zooming in on the latest balance sheet data, we can see that Lightspeed Commerce had liabilities of US$181.0 million due within 12 months and liabilities of US$28.2 million due beyond. In return, he had $914.8 million in cash and $41.7 million in receivables due within 12 months. It can therefore boast of having $747.3 million more in liquid assets than total Passives.

It’s good to see that Lightspeed Commerce has plenty of cash on its balance sheet, which suggests careful liability management. Due to her strong net asset position, she is unlikely to run into problems with her lenders. In short, Lightspeed Commerce has a net cash position, so it’s fair to say that it doesn’t have a lot of debt! When analyzing debt levels, the balance sheet is the obvious starting point. But future earnings, more than anything, will determine Lightspeed Commerce’s ability to maintain a healthy balance sheet in the future. So if you want to see what the pros think, you might find this free analyst earnings forecast report Be interesting.

Last year, Lightspeed Commerce was not profitable on an EBIT level, but managed to increase its revenue by 101%, to $606 million. Its fairly obvious shareholders therefore hope for more growth!

So how risky is Lightspeed Commerce?

By their very nature, companies that lose money are riskier than those with a long history of profitability. And over the past year, Lightspeed Commerce has posted a loss in earnings before interest and taxes (EBIT), if truth be told. Indeed, during this period, it burned $119 million in cash and suffered a loss of $340 million. While this makes the business a bit risky, it’s important to remember that it has a net cash position of $884.9 million. That means it could continue spending at its current rate for more than two years. Importantly, Lightspeed Commerce revenue growth is imminent. High-growth, for-profit businesses may well be risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist outside of the balance sheet. Example: we have identified 1 warning sign for Lightspeed Commerce you should be aware.

If you are interested in investing in companies that can generate profits without the burden of debt, then check out this free list of growing companies that have net cash on the balance sheet.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.