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

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.' 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 is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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.

Our analysis indicates that BB is potentially undervalued!

How Much Debt Does BlackBerry Carry?

You can click the graphic below for the historical numbers, but it shows that BlackBerry had US$449.0m of debt in August 2022, down from US$782.0m, one year before. However, its balance sheet shows it holds US$643.0m in cash, so it actually has US$194.0m net cash.

A Look At BlackBerry's Liabilities

The latest balance sheet data shows that BlackBerry had liabilities of US$516.0m due within a year, and liabilities of US$535.0m falling due after that. Offsetting these obligations, it had cash of US$643.0m as well as receivables valued at US$124.0m due within 12 months. So it has liabilities totalling US$284.0m more than its cash and near-term receivables, combined.

Given BlackBerry has a market capitalization of US$2.67b, it's hard to believe these liabilities pose much 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if BlackBerry can strengthen its balance sheet over time. 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$705m, which is a fall of 9.3%. That's not what we would hope to see.

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. Indeed, in that time it burnt through US$117m of cash and made a loss of US$17m. But the saving grace is the US$194.0m on the balance sheet. 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. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for BlackBerry that you should be aware of before investing here.

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.