Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, BILL Holdings, Inc. (NYSE:BILL) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does BILL Holdings Carry?

As you can see below, BILL Holdings had US$914.0m of debt at June 2024, down from US$1.84b a year prior. But on the other hand it also has US$1.59b in cash, leading to a US$673.5m net cash position.

A Look At BILL Holdings' Liabilities

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. On the other hand, it had cash of US$1.59b and US$736.1m worth of receivables due within a year. So it has liabilities totalling US$2.72b more than its cash and near-term receivables, combined.

BILL Holdings has a market capitalization of US$5.48b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, BILL Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine BILL Holdings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

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. With any luck the company will be able to grow its way to profitability.

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 although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. 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 we still think it's somewhat 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. Case in point: We've spotted 2 warning signs for BILL Holdings you should be aware of, and 1 of them is a bit concerning.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.