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. As with many other companies Corsair Gaming, Inc. (NASDAQ:CRSR) makes use of debt. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
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. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is Corsair Gaming's Debt?
As you can see below, Corsair Gaming had US$177.2m of debt at September 2024, down from US$222.7m a year prior. On the flip side, it has US$58.9m in cash leading to net debt of about US$118.3m.
A Look At Corsair Gaming's Liabilities
We can see from the most recent balance sheet that Corsair Gaming had liabilities of US$361.1m falling due within a year, and liabilities of US$228.7m due beyond that. On the other hand, it had cash of US$58.9m and US$178.1m worth of receivables due within a year. So it has liabilities totalling US$352.8m more than its cash and near-term receivables, combined.
This deficit isn't so bad because Corsair Gaming is worth US$760.1m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Corsair Gaming 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 Corsair Gaming had a loss before interest and tax, and actually shrunk its revenue by 8.4%, to US$1.3b. That's not what we would hope to see.
Caveat Emptor
Importantly, Corsair Gaming had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$44m. 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. We would feel better if it turned its trailing twelve month loss of US$94m into a profit. So to be blunt we do think it is 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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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.
