Health Check: How Prudently Does Riot Platforms (NASDAQ:RIOT) Use Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 note that Riot Platforms, Inc. (NASDAQ:RIOT) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Riot Platforms

What Is Riot Platforms's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Riot Platforms had debt of US$6.26m, up from US$700.0k in one year. However, its balance sheet shows it holds US$545.8m in cash, so it actually has US$539.6m net cash.

How Strong Is Riot Platforms' Balance Sheet?

According to the last reported balance sheet, Riot Platforms had liabilities of US$126.2m due within 12 months, and liabilities of US$47.0m due beyond 12 months. Offsetting these obligations, it had cash of US$545.8m as well as receivables valued at US$30.7m due within 12 months. So it can boast US$403.3m more liquid assets than total liabilities.

This short term liquidity is a sign that Riot Platforms could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Riot Platforms has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Riot Platforms'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.

Over 12 months, Riot Platforms reported revenue of US$313m, which is a gain of 19%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Riot Platforms?

While Riot Platforms lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of US$12m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 5 warning signs for Riot Platforms (3 are potentially serious!) that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.