Here's Why Uber Technologies (NYSE:UBER) Can Afford Some Debt

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 note that Uber Technologies, Inc. (NYSE:UBER) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Uber Technologies

How Much Debt Does Uber Technologies Carry?

The chart below, which you can click on for greater detail, shows that Uber Technologies had US$9.39b in debt in December 2022; about the same as the year before. However, it also had US$4.31b in cash, and so its net debt is US$5.08b.

How Healthy Is Uber Technologies' Balance Sheet?

According to the last reported balance sheet, Uber Technologies had liabilities of US$8.85b due within 12 months, and liabilities of US$14.8b due beyond 12 months. Offsetting this, it had US$4.31b in cash and US$3.49b in receivables that were due within 12 months. So its liabilities total US$15.8b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Uber Technologies is worth a massive US$62.7b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. 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 Uber Technologies'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 Uber Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 83%, to US$32b. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Uber Technologies still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$1.8b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of US$9.1b into a profit. So to be blunt we do think it is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Uber Technologies you should be aware of.

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.