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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. As with many other companies BlackBerry Limited (TSE:BB) makes use of debt. But the more important question is: how much risk is that debt creating?
Why Does Debt Bring Risk?
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. 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. When we think about a company's use of debt, we first look at cash and debt together.
See our latest analysis for BlackBerry
What Is BlackBerry's Net Debt?
You can click the graphic below for the historical numbers, but it shows that BlackBerry had US$459.0m of debt in May 2022, down from US$715.0m, one year before. However, it does have US$663.0m in cash offsetting this, leading to net cash of US$204.0m.
A Look At BlackBerry's Liabilities
We can see from the most recent balance sheet that BlackBerry had liabilities of US$521.0m falling due within a year, and liabilities of US$554.0m due beyond that. Offsetting these obligations, it had cash of US$663.0m as well as receivables valued at US$132.0m due within 12 months. So its liabilities total US$280.0m more than the combination of its cash and short-term receivables.
Since publicly traded BlackBerry shares are worth a total of US$3.33b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, BlackBerry also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine BlackBerry'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.