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Does DocuSign (NASDAQ:DOCU) Have A Healthy Balance Sheet?

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.' 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 DocuSign, Inc. (NASDAQ:DOCU) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

Check out our latest analysis for DocuSign

How Much Debt Does DocuSign Carry?

The image below, which you can click on for greater detail, shows that at July 2021 DocuSign had debt of US$732.3m, up from US$479.1m in one year. However, it does have US$822.9m in cash offsetting this, leading to net cash of US$90.6m.

debt-equity-history-analysis
debt-equity-history-analysis

A Look At DocuSign's Liabilities

According to the last reported balance sheet, DocuSign had liabilities of US$1.21b due within 12 months, and liabilities of US$934.2m due beyond 12 months. On the other hand, it had cash of US$822.9m and US$298.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.02b.

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This state of affairs indicates that DocuSign's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$54.0b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, DocuSign boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine DocuSign'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.

Over 12 months, DocuSign reported revenue of US$1.8b, which is a gain of 54%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is DocuSign?

While DocuSign lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$367m. 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. One positive is that DocuSign is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But we still think it's somewhat risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example - DocuSign has 2 warning signs we think 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.

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.

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