Is BlackBerry (TSE:BB) Weighed On By Its Debt Load?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for BlackBerry

What Is BlackBerry's Net Debt?

The image below, which you can click on for greater detail, shows that BlackBerry had debt of US$367.0m at the end of February 2023, a reduction from US$507.0m over a year. However, it does have US$426.0m in cash offsetting this, leading to net cash of US$59.0m.

How Healthy Is BlackBerry's Balance Sheet?

According to the last reported balance sheet, BlackBerry had liabilities of US$729.0m due within 12 months, and liabilities of US$93.0m due beyond 12 months. Offsetting this, it had US$426.0m in cash and US$135.0m 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$3.05b, 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. The balance sheet is clearly the area to focus on when you are analysing debt. 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$656m, which is a fall of 8.6%. 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 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$304m and booked a US$734m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$59.0m. 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. 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 - BlackBerry has 1 warning sign we think you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.