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

Warren Buffett famously said, '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. 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?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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 BlackBerry

How Much Debt Does BlackBerry Carry?

The image below, which you can click on for greater detail, shows that BlackBerry had debt of US$459.0m at the end of May 2022, a reduction from US$715.0m over a year. But it also has US$663.0m in cash to offset that, meaning it has US$204.0m net cash.

How Strong Is BlackBerry's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that BlackBerry had liabilities of US$521.0m due within 12 months 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 outweigh the sum of its cash and (near-term) receivables by US$280.0m.

Since publicly traded BlackBerry shares are worth a total of US$3.69b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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. When analysing debt levels, the balance sheet is the obvious place to start. 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.

Over 12 months, BlackBerry made a loss at the EBIT level, and saw its revenue drop to US$712m, which is a fall of 17%. We would much prefer see growth.

So How Risky Is BlackBerry?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months BlackBerry lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$77m and booked a US$107m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$204.0m. That kitty means the company can keep spending for growth for at least two years, at current rates. 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 instance, we've identified 1 warning sign for BlackBerry that you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.