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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.' 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, Snowflake Inc. (NYSE:SNOW) does carry debt. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Snowflake's Debt?
The image below, which you can click on for greater detail, shows that at January 2025 Snowflake had debt of US$2.27b, up from none in one year. But on the other hand it also has US$4.64b in cash, leading to a US$2.37b net cash position.
A Look At Snowflake's Liabilities
We can see from the most recent balance sheet that Snowflake had liabilities of US$3.30b falling due within a year, and liabilities of US$2.73b due beyond that. On the other hand, it had cash of US$4.64b and US$946.4m worth of receivables due within a year. So it has liabilities totalling US$443.2m more than its cash and near-term receivables, combined.
Having regard to Snowflake's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$60.2b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Snowflake also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Snowflake 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.