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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Cloudflare, Inc. (NYSE:NET) does carry debt. But should shareholders be worried about its use of debt?
When Is Debt A Problem?
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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Cloudflare's Net Debt?
The chart below, which you can click on for greater detail, shows that Cloudflare had US$1.29b in debt in December 2024; about the same as the year before. However, it does have US$1.86b in cash offsetting this, leading to net cash of US$568.6m.
How Healthy Is Cloudflare's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Cloudflare had liabilities of US$793.7m due within 12 months and liabilities of US$1.46b due beyond that. Offsetting this, it had US$1.86b in cash and US$333.3m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$65.7m.
This state of affairs indicates that Cloudflare'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$43.1b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Cloudflare also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Cloudflare can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
See our latest analysis for Cloudflare
In the last year Cloudflare wasn't profitable at an EBIT level, but managed to grow its revenue by 29%, to US$1.7b. With any luck the company will be able to grow its way to profitability.