Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that ChargePoint Holdings, Inc. (NYSE:CHPT) does use debt in its business. But is this debt a concern to shareholders?

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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is ChargePoint Holdings's Net Debt?

The chart below, which you can click on for greater detail, shows that ChargePoint Holdings had US$283.7m in debt in January 2024; about the same as the year before. But it also has US$327.4m in cash to offset that, meaning it has US$43.7m net cash.

How Healthy Is ChargePoint Holdings' Balance Sheet?

We can see from the most recent balance sheet that ChargePoint Holdings had liabilities of US$330.2m falling due within a year, and liabilities of US$445.5m due beyond that. On the other hand, it had cash of US$327.4m and US$124.0m worth of receivables due within a year. So its liabilities total US$324.2m more than the combination of its cash and short-term receivables.

ChargePoint Holdings has a market capitalization of US$745.1m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, ChargePoint Holdings 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 it is future earnings, more than anything, that will determine ChargePoint Holdings's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, ChargePoint Holdings reported revenue of US$507m, which is a gain of 8.2%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is ChargePoint Holdings?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year ChargePoint Holdings had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$348m of cash and made a loss of US$458m. With only US$43.7m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for ChargePoint Holdings (1 is potentially serious!) that you should be aware of before investing here.

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.