Is Lightspeed Commerce (TSE: LSPD) using too much debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from risk.” It’s only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. Above all, Lightspeed Commerce Inc. (TSE: LSPD) carries debt. But does this debt worry shareholders?

When is Debt a Problem?

Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. If things really go wrong, lenders can take over the business. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution of a business with the ability to reinvest at high rates of return. When we look at debt levels, we first look at cash and debt levels, together.

Check out our latest review for Lightspeed Commerce

How much debt is Lightspeed Commerce?

The graph below, which you can click for more details, shows Lightspeed Commerce owed $ 29.8 million in debt as of September 2021; about the same as the year before. But on the other hand, it also has $ 1.18 billion in cash, which leads to a net cash position of $ 1.15 billion.

TSX: LSPD Debt to Equity History December 11, 2021

How strong is Lightspeed Commerce’s balance sheet?

We can see from the most recent balance sheet that Lightspeed Commerce had liabilities of US $ 144.5 million maturing within one year and liabilities of US $ 66.4 million maturing beyond that. . In return, he had $ 1.18 billion in cash and $ 27.4 million in receivables due within 12 months. So he actually has $ 996.7 million Following liquid assets as total liabilities.

This excess suggests that Lightspeed Commerce is using debt in a way that appears both safe and prudent. Due to its strong net asset position, it should not encounter any problems with its lenders. In short, Lightspeed Commerce has crisp cash flow, so it’s fair to say that it doesn’t have a lot of debt! There is no doubt that we learn the most about debt from the balance sheet. But it is future profits, more than anything, that will determine Lightspeed Commerce’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 Analyst Profit Forecast report interesting.

Last year Lightspeed Commerce was not profitable on EBIT level, but managed to increase revenue 159% to US $ 389 million. So there is no doubt that shareholders encourage growth

So how risky is Lightspeed Commerce?

We are convinced that loss-making companies are, in general, riskier than profitable ones. And over the past year, Lightspeed Commerce has experienced a loss of earnings before interest and taxes (EBIT), frankly. And during the same period, it recorded negative free cash outflows of US $ 111 million and a book loss of US $ 193 million. But the saving grace is the $ 1.15 billion on the balance sheet. This means that he could continue to spend at his current rate for more than two years. The good news for shareholders is that Lightspeed Commerce is experiencing tremendous revenue growth, so there is a very good chance that it will be able to increase its free cash flow in the years to come. While unprofitable businesses can be risky, they can also grow quickly and rapidly during those pre-profit years. When analyzing debt levels, the balance sheet is the obvious place to start. However, not all investment risks lie on the balance sheet – far from it. To this end, you need to know the 3 warning signs we spotted it with Lightspeed Commerce.

At the end of the day, it’s often best to focus on businesses that don’t have net debt. You can access our special list of these companies (all with a history of profit growth). It’s free.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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