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. Importantly, Twilio Inc. (NYSE:TWLO) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

What Is Twilio's Net Debt?

As you can see below, Twilio had US$990.2m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$2.70b in cash offsetting this, leading to net cash of US$1.71b.

A Look At Twilio's Liabilities

The latest balance sheet data shows that Twilio had liabilities of US$700.7m due within a year, and liabilities of US$1.11b falling due after that. Offsetting these obligations, it had cash of US$2.70b as well as receivables valued at US$550.9m due within 12 months. So it actually has US$1.44b more liquid assets than total liabilities.

This surplus suggests that Twilio has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Twilio has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Twilio 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 Twilio wasn't profitable at an EBIT level, but managed to grow its revenue by 5.8%, to US$4.3b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Twilio?

While Twilio lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$775m. 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. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Twilio you should be aware of.

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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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.