Health Check: How Cautiously Does Fiverr International (NYSE: FVRR) Use Debt?
Berkshire Hathaway’s Charlie Munger-backed external fund manager Li Lu is quick to say “The biggest risk in investing is not price volatility, but suffering a permanent loss of capital.” . So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. Above all, Fiverr International Ltd. (NYSE: FVRR) carries debt. But the real question is whether this debt makes the business risky.
When Is Debt a Problem?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. Of course, many companies use debt to finance their growth without negative consequences. When we think of a business’s use of debt, we first look at cash flow and debt together.
See our latest review for Fiverr International
What is the debt of Fiverr International?
The image below, which you can click for more details, shows that as of June 2021, Fiverr International was in debt of $ 364.8 million, up from $ 2.76 million in a year. However, it has US $ 441.8 million in cash offsetting this, leading to a net cash position of US $ 77.1 million.
How strong is Fiverr International’s balance sheet?
According to the latest published balance sheet, Fiverr International had liabilities of US $ 173.5 million due within 12 months and liabilities of US $ 376.4 million due beyond 12 months. On the other hand, he had cash of US $ 441.8 million and receivables of US $ 7.67 million within one year. It therefore has a liability totaling US $ 100.4 million more than its cash and short-term receivables combined.
This fact indicates that Fiverr International’s balance sheet looks quite strong, as its total liabilities roughly equal its liquid assets. So while it’s hard to imagine the US $ 5.78 billion company struggling to find the money, we still think it’s worth watching its balance sheet. Despite its notable liabilities, Fiverr International has a net cash flow, so it’s fair to say that it doesn’t have a heavy debt load! The balance sheet is clearly the area you need to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether Fiverr International can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
Over the past year, Fiverr International has not been profitable on an EBIT level, but has managed to increase its revenue by 82%, to $ 252 million. The shareholders are probably keeping their fingers crossed that this could generate a profit.
So how risky is Fiverr International?
While Fiverr International lost money on earnings before interest and taxes (EBIT), it actually generated positive free cash flow of US $ 28 million. Thus, although it is in deficit, it does not appear to present too much short-term balance sheet risk, given the net cash position. One bright spot is that Fiverr International is growing its revenue at a steady pace, making it easier to sell a growth story and raise capital if needed. But that doesn’t change our opinion that the title is risky. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. Note that Fiverr International displays 3 warning signs in our investment analysis , you must know…
Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash net growth stocks today.
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 shares 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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