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. As with many other companies Atlassian Corporation (NASDAQ:TEAM) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Atlassian

How Much Debt Does Atlassian Carry?

The chart below, which you can click on for greater detail, shows that Atlassian had US$986.8m in debt in December 2024; about the same as the year before. However, its balance sheet shows it holds US$2.47b in cash, so it actually has US$1.48b net cash.

A Look At Atlassian's Liabilities

The latest balance sheet data shows that Atlassian had liabilities of US$2.68b due within a year, and liabilities of US$1.54b falling due after that. Offsetting this, it had US$2.47b in cash and US$695.7m in receivables that were due within 12 months. So its liabilities total US$1.06b more than the combination of its cash and short-term receivables.

This state of affairs indicates that Atlassian's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$82.8b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Atlassian also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Atlassian'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.

Over 12 months, Atlassian reported revenue of US$4.8b, which is a gain of 23%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Atlassian?

While Atlassian lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$1.4b. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. The good news for Atlassian shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with Atlassian .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.