Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, BigBear.ai Holdings, Inc. (NYSE:BBAI) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is BigBear.ai Holdings's Net Debt?

As you can see below, BigBear.ai Holdings had US$195.7m of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$72.3m in cash offsetting this, leading to net debt of about US$123.4m.

A Look At BigBear.ai Holdings' Liabilities

The latest balance sheet data shows that BigBear.ai Holdings had liabilities of US$53.3m due within a year, and liabilities of US$204.8m falling due after that. Offsetting these obligations, it had cash of US$72.3m as well as receivables valued at US$35.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$150.9m.

This deficit isn't so bad because BigBear.ai Holdings is worth US$402.6m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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 BigBear.ai Holdings 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.

In the last year BigBear.ai Holdings had a loss before interest and tax, and actually shrunk its revenue by 8.8%, to US$147m. We would much prefer see growth.

Caveat Emptor

Importantly, BigBear.ai Holdings had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$39m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$22m of cash over the last year. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that BigBear.ai Holdings is showing 3 warning signs in our investment analysis , and 1 of those is concerning...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.