Upland Software (NASDAQ: UPLD) has debt but no profit; Should we be worried?

Warren Buffett said: “Volatility is far from synonymous with risk”. So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. We can see that Upland Software, Inc. (NASDAQ: UPLD) uses debt in its business. But should shareholders be concerned about its use of debt?

Why Does Debt Bring Risk?

Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still painful) scenario is that he has to raise new equity at low cost, thereby constantly diluting shareholders. Of course, many companies use debt to finance their growth without negative consequences. When we think of a business’s use of debt, we first look at cash flow and debt together.

See our latest review for Upland Software

How much debt does Upland software carry?

The graph below, which you can click for more details, shows that Upland Software had $ 534.8 million in debt as of September 2021; about the same as the year before. On the other hand, it has $ 179.6 million in cash, resulting in net debt of around $ 355.2 million.

NasdaqGM: UPLD History of debt to equity December 15, 2021

How healthy is Upland Software’s balance sheet?

We can see from the most recent balance sheet that Upland Software had liabilities of US $ 145.0 million due within one year and liabilities of US $ 569.7 million beyond. In return, he had $ 179.6 million in cash and $ 42.9 million in receivables due within 12 months. As a result, its liabilities exceed the sum of its cash and (short-term) receivables by US $ 492.2 million.

This is a mountain of leverage compared to its market cap of US $ 593.7 million. This suggests that shareholders would be greatly diluted if the company needed to consolidate its balance sheet quickly. The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether Upland Software can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

Over the past year, Upland Software has not been profitable in EBIT, but has managed to increase its revenue by 8.9% to US $ 305 million. We usually like to see unprofitable businesses growing faster, but each in their own way.

Emptor Warning

Importantly, Upland Software has recorded a loss of profit before interest and taxes (EBIT) in the past year. To be precise, the EBIT loss amounted to US $ 3.6 million. Considering that besides the liabilities mentioned above, we are not convinced that the company should use so much debt. Quite frankly, we think the record is far from up to par, although it could improve over time. We’d be better off if he turned his 12-month loss of US $ 56 million into a profit. In the meantime, we consider the title to be very risky. When analyzing debt levels, the balance sheet is the obvious place to start. However, not all investment risks lie on the balance sheet – far from it. These risks can be difficult to spot. Every business has them, and we’ve spotted 4 warning signs for Upland Software you should know.

If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash-flow-growing stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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