Health Check: How Prudently Does Liberty Global (NASDAQ:LBTY.A) 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 Liberty Global Ltd. (NASDAQ:LBTY.A) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

Check out our latest analysis for Liberty Global

How Much Debt Does Liberty Global Carry?

As you can see below, Liberty Global had US$9.25b of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$2.41b in cash offsetting this, leading to net debt of about US$6.84b.

How Healthy Is Liberty Global's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Liberty Global had liabilities of US$3.13b due within 12 months and liabilities of US$9.76b due beyond that. Offsetting this, it had US$2.41b in cash and US$513.0m in receivables that were due within 12 months. So it has liabilities totalling US$9.98b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the US$4.09b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Liberty Global would likely require a major re-capitalisation if it had to pay its creditors today. 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 Liberty Global 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, Liberty Global reported revenue of US$4.3b, which is a gain of 5.5%, 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.

Caveat Emptor

Over the last twelve months Liberty Global produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$14m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. On the bright side, we note that trailing twelve month EBIT is worse than the free cash flow of US$1.1b and the profit of US$1.8b. So there is definitely a chance that it can improve things in the next few years. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Liberty Global (of which 1 doesn't sit too well with us!) you should know about.

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.