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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Bitfarms Ltd. (CVE:BITF) makes use of debt. But the real question is whether this debt is making the company risky.
Why Does Debt Bring Risk?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 Bitfarms
What Is Bitfarms's Debt?
The image below, which you can click on for greater detail, shows that Bitfarms had debt of US$11.0m at the end of September 2021, a reduction from US$16.9m over a year. But it also has US$43.3m in cash to offset that, meaning it has US$32.3m net cash.
How Strong Is Bitfarms' Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Bitfarms had liabilities of US$27.7m due within 12 months and liabilities of US$12.9m due beyond that. Offsetting these obligations, it had cash of US$43.3m as well as receivables valued at US$3.14m due within 12 months. So it can boast US$5.79m more liquid assets than total liabilities.
Having regard to Bitfarms' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$972.9m company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Bitfarms has more cash than debt is arguably a good indication that it can manage its debt safely.
Although Bitfarms made a loss at the EBIT level, last year, it was also good to see that it generated US$48m in EBIT over the last twelve months. 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 Bitfarms 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.