David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We note that ServiceSource International, Inc. (NASDAQ:SREV) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for ServiceSource International

What Is ServiceSource International's Net Debt?

As you can see below, ServiceSource International had US$10.0m of debt at December 2021, down from US$15.0m a year prior. But on the other hand it also has US$28.5m in cash, leading to a US$18.5m net cash position.

A Look At ServiceSource International's Liabilities

According to the last reported balance sheet, ServiceSource International had liabilities of US$44.4m due within 12 months, and liabilities of US$21.0m due beyond 12 months. Offsetting these obligations, it had cash of US$28.5m as well as receivables valued at US$43.6m due within 12 months. So it actually has US$6.66m more liquid assets than total liabilities.

This short term liquidity is a sign that ServiceSource International could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that ServiceSource International has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is ServiceSource International's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, ServiceSource International saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.