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.' 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, Corsair Gaming, Inc. (NASDAQ:CRSR) 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Corsair Gaming Carry?

The image below, which you can click on for greater detail, shows that Corsair Gaming had debt of US$183.3m at the end of March 2024, a reduction from US$228.8m over a year. However, because it has a cash reserve of US$127.8m, its net debt is less, at about US$55.6m.

How Strong Is Corsair Gaming's Balance Sheet?

According to the last reported balance sheet, Corsair Gaming had liabilities of US$342.1m due within 12 months, and liabilities of US$225.8m due beyond 12 months. On the other hand, it had cash of US$127.8m and US$204.9m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$235.3m.

This deficit isn't so bad because Corsair Gaming is worth US$1.01b, 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. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Corsair Gaming'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 Corsair Gaming wasn't profitable at an EBIT level, but managed to grow its revenue by 7.0%, to US$1.4b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Corsair Gaming produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$1.6m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of US$8.3m. So we do think this stock is quite risky. For riskier companies like Corsair Gaming I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.

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