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.' 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. Importantly, TechTarget, Inc. (NASDAQ:TTGT) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is TechTarget's Net Debt?

As you can see below, TechTarget had US$412.2m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has US$355.8m in cash leading to net debt of about US$56.3m.

How Healthy Is TechTarget's Balance Sheet?

We can see from the most recent balance sheet that TechTarget had liabilities of US$38.7m falling due within a year, and liabilities of US$444.8m due beyond that. Offsetting this, it had US$355.8m in cash and US$40.4m in receivables that were due within 12 months. So its liabilities total US$87.2m more than the combination of its cash and short-term receivables.

Of course, TechTarget has a market capitalization of US$948.4m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if TechTarget 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.

Over 12 months, TechTarget made a loss at the EBIT level, and saw its revenue drop to US$226m, which is a fall of 7.9%. That's not what we would hope to see.

Caveat Emptor

Importantly, TechTarget had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$7.8m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of US$12m. So to be blunt we do think it is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 2 warning signs for TechTarget you should be aware of.

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.