Does BlackBerry (TSE:BB) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, BlackBerry Limited (TSE:BB) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for BlackBerry

How Much Debt Does BlackBerry Carry?

As you can see below, at the end of May 2021, BlackBerry had US$715.0m of debt, up from US$599.0m a year ago. Click the image for more detail. However, it also had US$703.0m in cash, and so its net debt is US$12.0m.

How Healthy Is BlackBerry's Balance Sheet?

The latest balance sheet data shows that BlackBerry had liabilities of US$402.0m due within a year, and liabilities of US$863.0m falling due after that. Offsetting this, it had US$703.0m in cash and US$189.0m in receivables that were due within 12 months. So its liabilities total US$373.0m more than the combination of its cash and short-term receivables.

Given BlackBerry has a market capitalization of US$6.12b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Carrying virtually no net debt, BlackBerry has a very light debt load indeed. There's no doubt that we learn most about debt from the balance sheet. 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 14%, to US$861m. That's not what we would hope to see.

Caveat Emptor

Not only did BlackBerry's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at US$109m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of US$530m into a profit. So to be blunt we do think it is risky. 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. Case in point: We've spotted 1 warning sign for BlackBerry 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.

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