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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that HIVE Blockchain Technologies Ltd. (CVE:HIVE) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, 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 think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for HIVE Blockchain Technologies
What Is HIVE Blockchain Technologies's Debt?
You can click the graphic below for the historical numbers, but it shows that HIVE Blockchain Technologies had US$26.7m of debt in December 2022, down from US$34.0m, one year before. However, it also had US$14.1m in cash, and so its net debt is US$12.5m.
A Look At HIVE Blockchain Technologies' Liabilities
Zooming in on the latest balance sheet data, we can see that HIVE Blockchain Technologies had liabilities of US$22.3m due within 12 months and liabilities of US$26.2m due beyond that. Offsetting these obligations, it had cash of US$14.1m as well as receivables valued at US$10.8m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$23.6m.
Given HIVE Blockchain Technologies has a market capitalization of US$199.4m, 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. 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 HIVE Blockchain Technologies'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 HIVE Blockchain Technologies had a loss before interest and tax, and actually shrunk its revenue by 30%, to US$138m. That makes us nervous, to say the least.
Caveat Emptor
While HIVE Blockchain Technologies's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping US$137m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$49m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with HIVE Blockchain Technologies , and understanding them should be part of your investment process.
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.
Valuation is complex, but we're here to simplify it.
Discover if HIVE Digital Technologies might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About TSX:HIVE
HIVE Digital Technologies
A technology company, engages in the building and operating data centers powered by green energy in Bermuda, Paraguay, Sweden, and Canada.
Moderate risk with adequate balance sheet.
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