Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 can see that Snowflake Inc. (NYSE:SNOW) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Snowflake

What Is Snowflake's Net Debt?

As you can see below, at the end of October 2024, Snowflake had US$2.27b of debt, up from none a year ago. Click the image for more detail. But it also has US$4.16b in cash to offset that, meaning it has US$1.89b net cash.

A Look At Snowflake's Liabilities

The latest balance sheet data shows that Snowflake had liabilities of US$2.65b due within a year, and liabilities of US$2.62b falling due after that. Offsetting this, it had US$4.16b in cash and US$618.9m in receivables that were due within 12 months. So its liabilities total US$492.0m more than the combination of its cash and short-term receivables.

This state of affairs indicates that Snowflake'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$58.7b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Snowflake boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Snowflake can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Snowflake wasn't profitable at an EBIT level, but managed to grow its revenue by 30%, to US$3.4b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Snowflake?

While Snowflake lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$793m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. One positive is that Snowflake is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But we still think it's somewhat risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Snowflake is showing 1 warning sign in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.