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Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Adobe Inc. (NASDAQ:ADBE) does carry debt. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
How Much Debt Does Adobe Carry?
The image below, which you can click on for greater detail, shows that at February 2025 Adobe had debt of US$6.16b, up from US$3.64b in one year. But on the other hand it also has US$7.44b in cash, leading to a US$1.28b net cash position.
How Healthy Is Adobe's Balance Sheet?
The latest balance sheet data shows that Adobe had liabilities of US$9.16b due within a year, and liabilities of US$7.70b falling due after that. On the other hand, it had cash of US$7.44b and US$1.97b worth of receivables due within a year. So it has liabilities totalling US$7.45b more than its cash and near-term receivables, combined.
Of course, Adobe has a titanic market capitalization of US$168.7b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Adobe also has more cash than debt, so we're pretty confident it can manage its debt safely.
See our latest analysis for Adobe
And we also note warmly that Adobe grew its EBIT by 16% last year, making its debt load easier to handle. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Adobe'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.