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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Atlassian Corporation (NASDAQ:TEAM) does carry debt. But the real question is whether this debt is making the company risky.
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of ‘creative destruction’ where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
View our latest analysis for Atlassian
The chart below, which you can click on for greater detail, shows that Atlassian had US$986.3m in debt in September 2024; about the same as the year before. However, it does have US$2.22b in cash offsetting this, leading to net cash of US$1.23b.
According to the last reported balance sheet, Atlassian had liabilities of US$2.44b due within 12 months, and liabilities of US$1.53b due beyond 12 months. Offsetting these obligations, it had cash of US$2.22b as well as receivables valued at US$484.1m due within 12 months. So its liabilities total US$1.26b more than the combination of its cash and short-term receivables.
Having regard to Atlassian’s size, it seems that its liquid assets are well balanced with its total liabilities. So it’s very unlikely that the US$71.5b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Atlassian 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 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.
