Yahoo Finance Does Proofpoint (NASDAQ:PFPT) Have A Healthy Balance Sheet?
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk'. When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Proofpoint, Inc. (NASDAQ:PFPT) makes use of debt. But the real question is whether this debt is making the company risky.
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.
View our latest analysis for Proofpoint
What Is Proofpoint's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of December 2019 Proofpoint had US$749.6m of debt, an increase on none, over one year. However, its balance sheet shows it holds US$890.9m in cash, so it actually has US$141.3m net cash.
How Healthy Is Proofpoint's Balance Sheet?
According to the last reported balance sheet, Proofpoint had liabilities of US$771.8m due within 12 months, and liabilities of US$973.2m due beyond 12 months. On the other hand, it had cash of US$890.9m and US$265.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$588.3m.
Since publicly traded Proofpoint shares are worth a total of US$6.79b, it seems unlikely that this level of liabilities would be a major threat. 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, Proofpoint 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 Proofpoint's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Proofpoint reported revenue of US$888m, which is a gain of 24%, 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 Proofpoint?
Although Proofpoint had negative earnings before interest and tax (EBIT) over the last twelve months, it generated positive free cash flow of US$207m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. One positive is that Proofpoint 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Proofpoint you should be aware of.
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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