Is BILL Holdings (NYSE:BILL) Using Too Much Debt?

Simply Wall St · 10/18 16:09

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that BILL Holdings, Inc. (NYSE:BILL) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for BILL Holdings

What Is BILL Holdings's Net Debt?

As you can see below, BILL Holdings had US$914.0m of debt at June 2024, down from US$1.84b a year prior. However, its balance sheet shows it holds US$1.59b in cash, so it actually has US$673.5m net cash.

debt-equity-history-analysis
NYSE:BILL Debt to Equity History October 18th 2024

How Strong Is BILL Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that BILL Holdings had liabilities of US$4.06b due within 12 months and liabilities of US$981.6m due beyond that. Offsetting this, it had US$1.59b in cash and US$736.1m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$2.72b.

This deficit isn't so bad because BILL Holdings is worth US$5.92b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, BILL Holdings 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 ultimately the future profitability of the business will decide if BILL Holdings 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 BILL Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 22%, to US$1.3b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is BILL Holdings?

While BILL Holdings lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$258m. 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 BILL Holdings 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. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 2 warning signs we've spotted with BILL Holdings (including 1 which is a bit concerning) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.