Does Bitfarms (TSE:BITF) Have A Healthy Balance Sheet?

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 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. As with many other companies Bitfarms Ltd. (TSE:BITF) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. 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. 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. 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 Bitfarms

How Much Debt Does Bitfarms Carry?

You can click the graphic below for the historical numbers, but it shows that Bitfarms had US$1.65m of debt in June 2024, down from US$15.6m, one year before. However, it does have US$138.6m in cash offsetting this, leading to net cash of US$137.0m.

A Look At Bitfarms' Liabilities

We can see from the most recent balance sheet that Bitfarms had liabilities of US$46.4m falling due within a year, and liabilities of US$15.6m due beyond that. Offsetting this, it had US$138.6m in cash and US$18.8m in receivables that were due within 12 months. So it can boast US$95.4m more liquid assets than total liabilities.

This short term liquidity is a sign that Bitfarms could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Bitfarms boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Bitfarms 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, Bitfarms reported revenue of US$173m, which is a gain of 37%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Bitfarms?

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 Bitfarms lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$150m of cash and made a loss of US$106m. Given it only has net cash of US$137.0m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Bitfarms may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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. Be aware that Bitfarms is showing 3 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

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.