HIVE Blockchain Technologies (CVE:HIVE) uses moderate debt

Warren Buffett famously said, “Volatility is far from synonymous with risk.” When we think about how risky a company is, we always like to look at the use of debt, as debt overload can lead to ruin. We notice that HIVE Blockchain Technologies Ltd. (CVE:HIVE) has debt on its balance sheet. But should shareholders be concerned about the use of debt?

What risk does debt pose?

Debt assists a business until the business has problems paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. Although not very common, we often see indebted companies permanently draining shareholders because lenders force them to raise capital at a difficult price. The upside of debt is, of course, that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest with high returns. When we think about a company’s use of debt, we first look at cash and debt together.

Check out our latest analysis for HIVE Blockchain Technologies

What is HIVE Blockchain Technologies’ debt?

You can click on the graphic below for the historical numbers, but it shows that HIVE Blockchain Technologies had USD 26.7 million in debt as of December 2022, down from USD 34.0 million, a year earlier. However, it also had $14.1 million in cash, leaving its net debt at $12.5 million.

A look at HIVE Blockchain Technologies’ commitments

Zooming in on the most recent balance sheet data, we can see that HIVE Blockchain Technologies had $22.3 million in liabilities due within 12 months and $26.2 million in liabilities beyond that. Offsetting these liabilities, the company had cash of $14.1 million and $10.8 million worth of receivables due within 12 months. So its liabilities outweigh the sum of cash and (current) receivables by USD 23.6 million.

Since HIVE Blockchain Technologies has a market cap of $199.4 million, it’s hard to believe that these liabilities pose much of a threat. But there are sufficient commitments that we would certainly recommend that shareholders continue to monitor the balance sheet going forward. There is no doubt that we learn the most about debt from the balance sheet. But it is future earnings, more than anything else, that will determine HIVE Blockchain Technologies’ ability to maintain a healthy balance sheet going forward. So if you are focused on the future you can check this out free report showing the analysts’ profit forecasts.

In the past year, HIVE Blockchain Technologies posted a loss before interest and tax, actually reducing revenue by 30%, to $138 million. It makes us nervous to say the least.

Caveat Emptor

While HIVE Blockchain Technologies’ declining revenue is about as heartwarming as a wet carpet, its earnings before interest and tax (EBIT) loss is even less appealing. The EBIT loss was a whopping 137 million dollars. When we look at it and remember the liabilities on the balance sheet, in relation to cash, it seems unwise to us for the company to have debt. Frankly, we think the balance is far from match-fit, although it can be improved over time. Another reason for caution is that it has lost $49 million in negative free cash flow over the past twelve months. So suffice it to say that we consider the stock to be very risky. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risk lies within the balance sheet – far from it. We have identified 3 warning signs with HIVE Blockchain Technologies, and understanding them should be part of your investment process.

If you’re interested in investing in businesses that can grow profits without the burden of debt, check this one out free list of growing businesses that have net cash on their balance sheets.

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This article by Simply Wall St is general. We provide commentary based on historical data and analyst forecasts only using an objective methodology, and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares, and does not take into account your goals or your financial situation. We aim to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.