Does (NASDAQ: WIX) Use Debt Wisely?


Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from risk.” 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. We notice that Ltd. (NASDAQ: WIX) has debt on its balance sheet. But the most 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 repay it easily, either by raising capital or with its own cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution of a business with the ability to reinvest at high rates of return. When we look at debt levels, we first consider both liquidity and debt levels.

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How much debt does have?

As you can see below, at the end of September 2021, was in debt of $ 921.7 million, up from $ 824.2 million a year ago. Click on the image for more details. But on the other hand, it also has $ 1.25 billion in cash, which leads to a net cash position of $ 324.0 million.

NasdaqGS: WIX History of debt to equity December 24, 2021

A look at the responsibilities of

We can see from the most recent balance sheet that had liabilities of US $ 720.4 million maturing within one year and liabilities of US $ 1.14 billion maturing within one year. of the. In compensation for these obligations, he had cash of US $ 1.25 billion as well as receivables valued at US $ 28.0 million maturing within 12 months. Its liabilities therefore total US $ 585.8 million more than the combination of its cash and short-term receivables.

Of course, has a market cap of $ 9.28 billion, so those liabilities are likely manageable. However, we think it’s worth keeping an eye on the strength of its balance sheet as it can change over time. While it has some liabilities to note, also has more cash than debt, so we’re pretty confident it can handle its debt safely. There is no doubt that we learn the most about debt from the balance sheet. But it is future profits, more than anything, that will determine’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 Analyst Profit Forecast report interesting.

Year-over-year, reported revenue of US $ 1.2 billion, a gain of 34%, although it reported no profit before interest and taxes. The shareholders are probably keeping their fingers crossed that this could generate a profit.

So how risky is

While lost money on earnings before interest and taxes (EBIT), it actually generated positive free cash flow of US $ 44 million. So, although it is in deficit, it does not appear to have too much short-term balance sheet risk, given the net cash position. One bright spot is that is growing its revenue at a steady rate, making it easier to sell a growth story and raise capital when needed. But we still think it’s a bit risky. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. These risks can be difficult to spot. Every business has them, and we’ve spotted 4 warning signs for (1 of which cannot be ignored!) that you should know.

At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.

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 any stock 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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