Lyft (NASDAQ:LYFT) Has Debt But No Earnings; Should You Worry?

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.' 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, Lyft, Inc. (NASDAQ:LYFT) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

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How Much Debt Does Lyft Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 Lyft had US$861.0m of debt, an increase on US$700.9m, over one year. But it also has US$1.81b in cash to offset that, meaning it has US$946.0m net cash.

A Look At Lyft's Liabilities

Zooming in on the latest balance sheet data, we can see that Lyft had liabilities of US$2.73b due within 12 months and liabilities of US$1.06b due beyond that. Offsetting these obligations, it had cash of US$1.81b as well as receivables valued at US$239.4m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.74b.

This deficit isn't so bad because Lyft is worth US$4.84b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, Lyft boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Lyft's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Lyft wasn't profitable at an EBIT level, but managed to grow its revenue by 51%, to US$3.7b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Lyft?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Lyft had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$274m and booked a US$904m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$946.0m. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, Lyft may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. For example, we've discovered 3 warning signs for Lyft 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.