Yahoo Finance Uber Technologies (NYSE:UBER) Is Carrying A Fair Bit Of Debt
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that Uber Technologies, Inc. (NYSE:UBER) does have debt on its balance sheet. But is this debt a concern to shareholders?
When Is Debt A Problem?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.
View our latest analysis for Uber Technologies
What Is Uber Technologies's Debt?
The chart below, which you can click on for greater detail, shows that Uber Technologies had US$9.39b in debt in December 2022; about the same as the year before. However, because it has a cash reserve of US$4.31b, its net debt is less, at about US$5.08b.
How Strong Is Uber Technologies' Balance Sheet?
The latest balance sheet data shows that Uber Technologies had liabilities of US$8.85b due within a year, and liabilities of US$14.8b falling due after that. Offsetting this, it had US$4.31b in cash and US$3.49b in receivables that were due within 12 months. So it has liabilities totalling US$15.8b more than its cash and near-term receivables, combined.
While this might seem like a lot, it is not so bad since Uber Technologies has a huge market capitalization of US$60.4b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Uber Technologies's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, Uber Technologies reported revenue of US$32b, which is a gain of 83%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.
Caveat Emptor
Despite the top line growth, Uber Technologies still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$1.8b at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of US$9.1b. So we do think this stock is quite risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with Uber Technologies .
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.
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