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Is Varonis Systems (NASDAQ:VRNS) taking on too much debt?

Some argue that volatility, not debt, is the best way to think about risk as an investor, but Warren Buffett once said, “Volatility is far from synonymous with risk.” It’s only natural to consider a company’s balance sheet when examining how risky it is, since debt is often involved when a company collapses. We can see that Varonis Systems, Inc. (NASDAQ:VRNS) does indeed use debt in its business. But should shareholders be concerned about its use of debt?

Why is debt risky?

Generally, debt only becomes a real problem when a company can’t easily pay it back, either by raising capital or with its own cash flow. If things go really bad, lenders can take control of the company. However, a more common (but still costly) case is when a company has to issue shares at bargain prices, permanently diluting shareholders’ ownership, just to shore up its balance sheet. Of course, many companies use debt to fund their growth without negative consequences. When we think about a company’s use of debt, we first consider cash and debt together.

Check out our latest analysis for Varonis Systems

How much debt does Varonis Systems have?

As you can see below, Varonis Systems had $250.9 million in debt as of March 2024, which is about the same as last year. You can click on the chart to see more details. On the other hand, the company also has $548.1 million in cash, resulting in net cash of $297.2 million.

NasdaqGS:VRNS Debt-Equity History July 11, 2024

A look at Varonis Systems’ liabilities

The latest balance sheet data shows that Varonis Systems had liabilities of $297.2 million due within a year and accounts payable of $304.1 million due after that. On the other hand, the company had cash of $548.1 million and accounts receivable of $100.4 million due within a year. Thus, the company actually has $47.2 million more Liquid assets are greater than total liabilities.

Considering Varonis Systems’ size, its cash and total liabilities seem to be balanced. While it’s hard to imagine the $5.13 billion company struggling with cash, we still think it’s worth keeping an eye on the balance sheet. In short, Varonis Systems has net cash flow, so it’s fair to say the company doesn’t have a heavy debt load! Undoubtedly, the balance sheet is what tells us the most about debt. But it’s future earnings that will determine whether Varonis Systems can maintain a healthy balance sheet in the future. So if you want to know what the professionals think, you might find this free report on analyst earnings forecasts interesting.

Last year, Varonis Systems was not profitable at the EBIT level, but it grew its revenue by 4.4% to $506 million. We usually like to see faster growth in unprofitable companies, but to each their own.

How risky are Varonis systems?

Although Varonis Systems was loss-making at the earnings before interest and tax (EBIT) level, the company actually generated positive free cash flow of $75 million. So, even though it is loss-making, there doesn’t seem to be too much near-term balance sheet risk given the net cash balance. Given the lackluster revenue growth, we’ll feel more comfortable with the stock once EBIT is positive. The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, every company can contain risks that exist off the balance sheet. We have identified 2 warning signs with Varonis systems, and understanding them should be part of your investment process.

If you are interested in investing in companies that can grow profits without the burden of debt, check this out free List of growing companies that have net cash on their balance sheet.

Valuation is complex, but we help simplify it.

Find out if Varonis Systems may be overvalued or undervalued by reading our comprehensive analysis, which includes: Fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View free analysis

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

Valuation is complex, but we help simplify it.

Find out if Varonis Systems may be overvalued or undervalued by reading our comprehensive analysis, which includes: Fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View free analysis

Do you have feedback on this article? Are you interested in the content? Contact us directly. Alternatively, send an email to [email protected]

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