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 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, ServiceSource International, Inc. (NASDAQ:SREV) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for ServiceSource International

How Much Debt Does ServiceSource International Carry?

The image below, which you can click on for greater detail, shows that ServiceSource International had debt of US$15.0m at the end of June 2021, a reduction from US$20.0m over a year. However, its balance sheet shows it holds US$32.5m in cash, so it actually has US$17.5m net cash.

How Healthy Is ServiceSource International's Balance Sheet?

According to the last reported balance sheet, ServiceSource International had liabilities of US$47.0m due within 12 months, and liabilities of US$23.2m due beyond 12 months. On the other hand, it had cash of US$32.5m and US$34.6m worth of receivables due within a year. So its liabilities total US$3.06m more than the combination of its cash and short-term receivables.

Of course, ServiceSource International has a market capitalization of US$128.2m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, ServiceSource International also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since ServiceSource International will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.