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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Taboola.com Ltd. (NASDAQ:TBLA) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Taboola.com Carry?

The image below, which you can click on for greater detail, shows that Taboola.com had debt of US$145.8m at the end of June 2024, a reduction from US$195.3m over a year. However, it does have US$182.2m in cash offsetting this, leading to net cash of US$36.4m.

A Look At Taboola.com's Liabilities

We can see from the most recent balance sheet that Taboola.com had liabilities of US$408.5m falling due within a year, and liabilities of US$212.8m due beyond that. Offsetting these obligations, it had cash of US$182.2m as well as receivables valued at US$281.7m due within 12 months. So its liabilities total US$157.4m more than the combination of its cash and short-term receivables.

Of course, Taboola.com has a market capitalization of US$1.23b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Taboola.com boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Taboola.com'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 Taboola.com wasn't profitable at an EBIT level, but managed to grow its revenue by 19%, to US$1.6b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Taboola.com?

While Taboola.com lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$88m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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. For instance, we've identified 1 warning sign for Taboola.com that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.