Is Blackline Safety (TSE:BLN) Using Debt Sensibly?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 Blackline Safety Corp. (TSE:BLN) does use debt in its business. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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.

See our latest analysis for Blackline Safety

What Is Blackline Safety's Debt?

The chart below, which you can click on for greater detail, shows that Blackline Safety had CA$18.0m in debt in July 2024; about the same as the year before. But on the other hand it also has CA$40.8m in cash, leading to a CA$22.9m net cash position.

How Healthy Is Blackline Safety's Balance Sheet?

According to the last reported balance sheet, Blackline Safety had liabilities of CA$52.4m due within 12 months, and liabilities of CA$33.5m due beyond 12 months. Offsetting these obligations, it had cash of CA$40.8m as well as receivables valued at CA$45.6m due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Blackline Safety's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CA$491.2m company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Blackline Safety 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 Blackline Safety 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, Blackline Safety reported revenue of CA$122m, which is a gain of 32%, 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 Blackline Safety?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Blackline Safety lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CA$13m of cash and made a loss of CA$17m. But the saving grace is the CA$22.9m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Blackline Safety's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Blackline Safety that you should be aware of before investing here.

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.