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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Uber Technologies, Inc. (NYSE:UBER) does carry debt. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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.
How Much Debt Does Uber Technologies Carry?
The chart below, which you can click on for greater detail, shows that Uber Technologies had US$9.45b in debt in September 2022; about the same as the year before. On the flip side, it has US$4.87b in cash leading to net debt of about US$4.59b.
How Strong Is Uber Technologies' Balance Sheet?
According to the last reported balance sheet, Uber Technologies had liabilities of US$9.02b due within 12 months, and liabilities of US$14.7b due beyond 12 months. Offsetting this, it had US$4.87b in cash and US$3.09b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$15.8b.
While this might seem like a lot, it is not so bad since Uber Technologies has a huge market capitalization of US$52.8b, and so it could probably strengthen its balance sheet by raising capital if it needed to. 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 ultimately the future profitability of the business will decide if Uber Technologies 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.
In the last year Uber Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 96%, to US$29b. With any luck the company will be able to grow its way to profitability.
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$2.2b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much 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$8.8b 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. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with Uber Technologies , and understanding them should be part of your investment process.
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.