Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 note that Blink Charging Co. (NASDAQ:BLNK) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Blink Charging's Debt?
As you can see below, Blink Charging had US$10.0k of debt at June 2019, down from US$338.0k a year prior. But it also has US$13.2m in cash to offset that, meaning it has US$13.1m net cash.
A Look At Blink Charging's Liabilities
Zooming in on the latest balance sheet data, we can see that Blink Charging had liabilities of US$3.97m due within 12 months and liabilities of US$245.2k due beyond that. Offsetting these obligations, it had cash of US$13.2m as well as receivables valued at US$252.6k due within 12 months. So it actually has US$9.19m more liquid assets than total liabilities.
This surplus suggests that Blink Charging has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Blink Charging 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 Blink Charging'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, Blink Charging reported revenue of US$2.8m, which is a gain of 6.4%. We usually like to see faster growth from unprofitable companies, but each to their own.
So How Risky Is Blink Charging?
Statistically speaking companies that lose money are riskier than those that make money. And in the last year Blink Charging had negative earnings before interest and tax (EBIT), truth be told. Indeed, in that time it burnt through US$11m of cash and made a loss of US$7.9m. But at least it has US$13m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. For riskier companies like Blink Charging I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.