Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from synonymous with risk.” So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. We can see that Uber Technologies, Inc. (NYSE: UBER) uses debt in its operations. But the more important question is: what risk does this debt create?
Why is debt risky?
Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. The first step when considering a company’s debt levels is to consider its cash and debt together.
What is Uber Technologies’ net debt?
The image below, which you can click on for more details, shows that in March 2022, Uber Technologies had $9.53 billion in debt, up from $7.83 billion in one year. However, he also had $4.18 billion in cash, so his net debt is $5.35 billion.
How strong is Uber Technologies’ balance sheet?
Zooming in on the latest balance sheet data, we can see that Uber Technologies had liabilities of US$8.65 billion due within 12 months and liabilities of US$14.3 billion due beyond. On the other hand, it had liquidities of 4.18 billion dollars and 3.09 billion dollars of receivables at less than one year. Thus, its liabilities total $15.7 billion more than the combination of its cash and short-term receivables.
That shortfall isn’t that bad, as Uber Technologies is worth US$47.6 billion and therefore could probably raise enough capital to shore up its balance sheet, should the need arise. But it is clear that it must be carefully examined whether he can manage his debt without dilution. There is no doubt that we learn the most about debt from the balance sheet. But it’s future earnings, more than anything, that will determine Uber Technologies’ ability to maintain a healthy balance sheet in the future. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Year-over-year, Uber Technologies posted revenue of $21 billion, a 98% gain, although it reported no earnings before interest and taxes. The shareholders probably have their fingers crossed that she can make a profit.
Despite the revenue growth, Uber Technologies still posted a loss in earnings before interest and taxes (EBIT) over the past year. To be precise, the EBIT loss amounted to 2.8 billion US dollars. Considering that alongside the liabilities mentioned above, this doesn’t give us much confidence that the company should use so much debt. Quite frankly, we think the track record falls short, although it could improve over time. However, it doesn’t help that he’s burned through $108 million in cash in the past year. So suffice it to say that we consider the stock to be risky. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. Know that Uber Technologies shows 1 warning sign in our investment analysis you should know…
If, after all that, you’re more interested in a fast-growing company with a strong balance sheet, check out our list of cash-neutral growth stocks right away.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.