These 4 Measures Indicate That Guidewire Software (NYSE:GWRE) Is Using Debt Safely

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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 note that Guidewire Software, Inc. (NYSE:GWRE) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Guidewire Software's Net Debt?

As you can see below, Guidewire Software had US$675.4m of debt at October 2025, down from US$950.4m a year prior. However, it does have US$1.01b in cash offsetting this, leading to net cash of US$336.5m.

How Strong Is Guidewire Software's Balance Sheet?

According to the last reported balance sheet, Guidewire Software had liabilities of US$389.9m due within 12 months, and liabilities of US$716.1m due beyond 12 months. Offsetting these obligations, it had cash of US$1.01b as well as receivables valued at US$257.6m due within 12 months. So it actually has US$163.6m more liquid assets than total liabilities.

This state of affairs indicates that Guidewire 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$17.1b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Guidewire Software boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Guidewire Software

It was also good to see that despite losing money on the EBIT line last year, Guidewire Software turned things around in the last 12 months, delivering and EBIT of US$64m. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Guidewire Software's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Guidewire Software has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, Guidewire Software actually produced more free cash flow than EBIT over the last year. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Guidewire Software has net cash of US$336.5m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$270m, being 421% of its EBIT. So is Guidewire Software's debt a risk? It doesn't seem so to us. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Guidewire Software you should know about.

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.

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