Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Varonis Systems, Inc. (NASDAQ:VRNS) makes use of debt. But the more important question is: how much risk is that debt creating?

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. If things get really bad, the lenders can take control of the business. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Varonis Systems's Net Debt?

As you can see below, Varonis Systems had US$250.9m of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$548.1m in cash, so it actually has US$297.2m net cash.

A Look At Varonis Systems' Liabilities

According to the last reported balance sheet, Varonis Systems had liabilities of US$297.2m due within 12 months, and liabilities of US$304.1m due beyond 12 months. On the other hand, it had cash of US$548.1m and US$100.4m worth of receivables due within a year. So it actually has US$47.2m more liquid assets than total liabilities.

Having regard to Varonis Systems' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$4.77b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Varonis Systems has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Varonis Systems'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.

In the last year Varonis Systems wasn't profitable at an EBIT level, but managed to grow its revenue by 4.4%, to US$506m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Varonis Systems?

Although Varonis Systems had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$75m. 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. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. For example, we've discovered 2 warning signs for Varonis Systems that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com