Is Blend Labs (NYSE:BLND) 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 note that Blend Labs, Inc. (NYSE:BLND) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. 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 Blend Labs

How Much Debt Does Blend Labs Carry?

The chart below, which you can click on for greater detail, shows that Blend Labs had US$219.0m in debt in September 2023; about the same as the year before. However, it does have US$245.0m in cash offsetting this, leading to net cash of US$26.0m.

How Strong Is Blend Labs' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Blend Labs had liabilities of US$36.8m due within 12 months and liabilities of US$230.5m due beyond that. Offsetting this, it had US$245.0m in cash and US$20.0m in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Blend Labs' 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$769.4m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Blend Labs also has more cash than debt, so we're pretty confident 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 Blend Labs'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 Blend Labs had a loss before interest and tax, and actually shrunk its revenue by 40%, to US$164m. That makes us nervous, to say the least.

So How Risky Is Blend Labs?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Blend Labs had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$155m of cash and made a loss of US$236m. But at least it has US$26.0m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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 3 warning signs for Blend Labs that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.