Brookdale Senior Living (NYSE:BKD) Has Debt But No Earnings; Should You Worry?

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, Brookdale Senior Living Inc. (NYSE:BKD) does carry debt. But the real question is whether this debt is making the company risky.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Brookdale Senior Living

What Is Brookdale Senior Living's Net Debt?

The chart below, which you can click on for greater detail, shows that Brookdale Senior Living had US$3.80b in debt in September 2023; about the same as the year before. On the flip side, it has US$397.9m in cash leading to net debt of about US$3.40b.

How Healthy Is Brookdale Senior Living's Balance Sheet?

We can see from the most recent balance sheet that Brookdale Senior Living had liabilities of US$898.3m falling due within a year, and liabilities of US$4.44b due beyond that. On the other hand, it had cash of US$397.9m and US$47.5m worth of receivables due within a year. So it has liabilities totalling US$4.89b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the US$1.08b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Brookdale Senior Living would likely require a major re-capitalisation if it had to pay its creditors today. 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 Brookdale Senior Living'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 Brookdale Senior Living wasn't profitable at an EBIT level, but managed to grow its revenue by 8.4%, to US$3.0b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Brookdale Senior Living produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$2.5m at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it vaporized US$137m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is risky, like walking through a dirty dog park with a mask on. 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. For instance, we've identified 1 warning sign for Brookdale Senior Living that you should be aware of.

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.