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BlackBerry (TSE:BB) Has Debt But No Earnings; Should You Worry?

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David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies BlackBerry Limited (TSE:BB) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for BlackBerry

What Is BlackBerry's Net Debt?

You can click the graphic below for the historical numbers, but it shows that BlackBerry had US$459.0m of debt in May 2022, down from US$715.0m, one year before. However, it does have US$663.0m in cash offsetting this, leading to net cash of US$204.0m.

debt-equity-history-analysis
debt-equity-history-analysis

A Look At BlackBerry's Liabilities

We can see from the most recent balance sheet that BlackBerry had liabilities of US$521.0m falling due within a year, and liabilities of US$554.0m due beyond that. Offsetting these obligations, it had cash of US$663.0m as well as receivables valued at US$132.0m due within 12 months. So its liabilities total US$280.0m more than the combination of its cash and short-term receivables.

Since publicly traded BlackBerry shares are worth a total of US$3.33b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, BlackBerry also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 BlackBerry'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.

In the last year BlackBerry had a loss before interest and tax, and actually shrunk its revenue by 17%, to US$712m. We would much prefer see growth.

So How Risky Is BlackBerry?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year BlackBerry had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$77m and booked a US$107m accounting loss. But the saving grace is the US$204.0m on the balance sheet. That means it could keep spending at its current rate for more than two years. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. For instance, we've identified 2 warning signs for BlackBerry that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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