Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Jamf Holding Corp. (NASDAQ:JAMF) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. 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 Jamf Holding's Net Debt?

The chart below, which you can click on for greater detail, shows that Jamf Holding had US$368.9m in debt in September 2024; about the same as the year before. On the flip side, it has US$218.4m in cash leading to net debt of about US$150.5m.

How Healthy Is Jamf Holding's Balance Sheet?

The latest balance sheet data shows that Jamf Holding had liabilities of US$419.0m due within a year, and liabilities of US$444.7m falling due after that. On the other hand, it had cash of US$218.4m and US$114.0m worth of receivables due within a year. So it has liabilities totalling US$531.2m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Jamf Holding is worth US$1.90b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Jamf Holding can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Jamf Holding wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to US$615m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Jamf Holding had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$57m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of US$69m into a profit. So to be blunt we do think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Jamf Holding you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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