Is BlackBerry (TSE:BB) Using Debt In A Risky Way?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We can see that BlackBerry Limited (TSE:BB) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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, 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.

Check out our latest analysis for BlackBerry

How Much Debt Does BlackBerry Carry?

You can click the graphic below for the historical numbers, but it shows that BlackBerry had US$392.0m of debt in November 2022, down from US$673.0m, one year before. However, it does have US$449.0m in cash offsetting this, leading to net cash of US$57.0m.

How Healthy Is BlackBerry's Balance Sheet?

The latest balance sheet data shows that BlackBerry had liabilities of US$767.0m due within a year, and liabilities of US$88.0m falling due after that. Offsetting this, it had US$449.0m in cash and US$145.0m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$261.0m.

Of course, BlackBerry has a market capitalization of US$2.27b, so these liabilities are probably manageable. 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. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, BlackBerry made a loss at the EBIT level, and saw its revenue drop to US$690m, which is a fall of 7.1%. We would much prefer see growth.

So How Risky Is BlackBerry?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that BlackBerry had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$284m of cash and made a loss of US$95m. While this does make the company a bit risky, it's important to remember it has net cash of US$57.0m. That means it could keep spending at its current rate for more than two years. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. 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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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.