Is Boston Omaha (NYSE:BOC) Weighed On By Its Debt Load?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 can see that Boston Omaha Corporation (NYSE:BOC) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 examine debt levels, we first consider both cash and debt levels, together.

Our analysis indicates that BOC is potentially overvalued!

How Much Debt Does Boston Omaha Carry?

The image below, which you can click on for greater detail, shows that at September 2022 Boston Omaha had debt of US$28.9m, up from US$22.2m in one year. But it also has US$97.6m in cash to offset that, meaning it has US$68.8m net cash.

How Healthy Is Boston Omaha's Balance Sheet?

According to the last reported balance sheet, Boston Omaha had liabilities of US$52.4m due within 12 months, and liabilities of US$106.9m due beyond 12 months. Offsetting this, it had US$97.6m in cash and US$6.50m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$55.2m.

Since publicly traded Boston Omaha shares are worth a total of US$774.5m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Boston Omaha boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Boston Omaha 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.

Over 12 months, Boston Omaha reported revenue of US$74m, which is a gain of 39%, 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 Boston Omaha?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Boston Omaha had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$48m and booked a US$11m accounting loss. With only US$68.8m on the balance sheet, it would appear that its going to need to raise capital again soon. Boston Omaha's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. For example, we've discovered 1 warning sign for Boston Omaha that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.