Is HIVE Blockchain Technologies (CVE:HIVE) A Risky Investment?

Warren Buffett famously said, '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. Importantly, HIVE Blockchain Technologies Ltd. (CVE:HIVE) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for HIVE Blockchain Technologies

What Is HIVE Blockchain Technologies's Net Debt?

The image below, which you can click on for greater detail, shows that HIVE Blockchain Technologies had debt of US$26.7m at the end of December 2022, a reduction from US$34.0m over a year. However, because it has a cash reserve of US$14.1m, its net debt is less, at about US$12.5m.

How Strong Is HIVE Blockchain Technologies' Balance Sheet?

The latest balance sheet data shows that HIVE Blockchain Technologies had liabilities of US$22.3m due within a year, and liabilities of US$26.2m falling due after 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 it has liabilities totalling US$23.6m more than its cash and near-term receivables, combined.

Given HIVE Blockchain Technologies has a market capitalization of US$303.3m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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 HIVE Blockchain Technologies can strengthen its balance sheet over time. 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, HIVE Blockchain Technologies made a loss at the EBIT level, and saw its revenue drop to US$138m, which is a fall of 30%. 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. To that end, you should be aware of the 3 warning signs we've spotted with HIVE Blockchain Technologies .

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.