Health Check: How Carefully Does Box (NYSE:BOX) Use Debt?
Berkshire Hathaway’s Charlie Munger-backed outside fund manager Li Lu is quick to say, “The biggest risk in investing isn’t price volatility, but whether you’re going to suffer a permanent loss of capital “. It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. Like many other companies Box, Inc. (NYSE:BOX) uses debt. But the more important question is: what risk does this debt create?
When is debt a problem?
Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. In the worst case, a company can go bankrupt if it cannot pay its creditors. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. Of course, many companies use debt to finance their growth, without any negative consequences. When we look at debt levels, we first consider cash and debt levels, together.
See our latest analysis for Box
What is Box’s debt?
The image below, which you can click on for more details, shows that as of January 2022, Box had $367.5 million in debt, up from $297.6 million in one year. But on the other hand, he also has $586.3 million in cash, resulting in a net cash position of $218.8 million.
How healthy is Box’s balance sheet?
Zooming in on the latest balance sheet data, we can see that Box had liabilities of US$719.0 million due within 12 months and liabilities of US$580.2 million due beyond. In compensation for these obligations, it had cash of US$586.3 million as well as receivables valued at US$256.3 million and maturing within 12 months. Thus, its liabilities outweigh the sum of its cash and receivables (current) by $456.6 million.
Given that Box has a market capitalization of US$4.33 billion, it’s hard to believe that these liabilities pose much of a threat. However, we think it’s worth keeping an eye on the strength of its balance sheet, as it can change over time. Despite its notable liabilities, Box has clean cash, so it’s fair to say that it doesn’t have a lot of debt! There is no doubt that we learn the most about debt from the balance sheet. But it’s future earnings, more than anything, that will determine Box’s ability to maintain a healthy balance sheet in the future. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Year-over-year, Box reported revenue of $874 million, a 13% gain, although it reported no earnings before interest and taxes. This rate of growth is a bit slow for our liking, but it takes all types to make a world.
So how risky is Box?
While Box lost money in earnings before interest and taxes (EBIT), it actually generated positive free cash flow of US$224 million. So taking that at face value and given the net cash position, we don’t think the stock is too risky in the near term. With uninspiring revenue growth, we would really need to see positive EBIT before we get a lot of excitement out of this business. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks reside on the balance sheet, far from it. We have identified 1 warning sign with Box, and understanding them should be part of your investment process.
In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeright now.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.