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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Net 1 UEPS Technologies, Inc. (NASDAQ:UEPS) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Net 1 UEPS Technologies

What Is Net 1 UEPS Technologies's Debt?

The image below, which you can click on for greater detail, shows that Net 1 UEPS Technologies had debt of US$14.8m at the end of June 2020, a reduction from US$85.0m over a year. However, it does have US$217.7m in cash offsetting this, leading to net cash of US$202.9m.

A Look At Net 1 UEPS Technologies's Liabilities

The latest balance sheet data shows that Net 1 UEPS Technologies had liabilities of US$71.3m due within a year, and liabilities of US$92.2m falling due after that. Offsetting these obligations, it had cash of US$217.7m as well as receivables valued at US$58.9m due within 12 months. So it actually has US$113.2m more liquid assets than total liabilities.

This surplus strongly suggests that Net 1 UEPS Technologies has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this basis we think its balance sheet is strong like a sleek panther or even a proud lion. Simply put, the fact that Net 1 UEPS Technologies has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Net 1 UEPS Technologies's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.