Is HIVE Digital Technologies (CVE:HIVE) Using Debt In A Risky Way?

Warren Buffett famously said, '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. Importantly, HIVE Digital Technologies Ltd. (CVE:HIVE) does carry debt. But the more important question is: how much risk is that debt creating?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, 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.

What Is HIVE Digital Technologies's Net Debt?

The image below, which you can click on for greater detail, shows that HIVE Digital Technologies had debt of US$18.7m at the end of December 2024, a reduction from US$22.4m over a year. However, its balance sheet shows it holds US$40.5m in cash, so it actually has US$21.9m net cash.

How Strong Is HIVE Digital Technologies' Balance Sheet?

According to the last reported balance sheet, HIVE Digital Technologies had liabilities of US$29.8m due within 12 months, and liabilities of US$14.4m due beyond 12 months. Offsetting this, it had US$40.5m in cash and US$2.03m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.66m.

This state of affairs indicates that HIVE Digital Technologies' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$361.6m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, HIVE Digital Technologies 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 ultimately the future profitability of the business will decide if HIVE Digital Technologies 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.

See our latest analysis for HIVE Digital Technologies

In the last year HIVE Digital Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 26%, to US$121m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is HIVE Digital Technologies?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that HIVE Digital Technologies had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$163m of cash and made a loss of US$6.6m. Given it only has net cash of US$21.9m, 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, HIVE Digital Technologies 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 HIVE Digital Technologies is showing 3 warning signs in our investment analysis , and 2 of those make us uncomfortable...

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.