Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Riot Platforms, Inc. (NASDAQ:RIOT) does have debt on its balance sheet. But is this debt a concern to shareholders?

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 examine debt levels, we first consider both cash and debt levels, together.

What Is Riot Platforms's Net Debt?

As you can see below, at the end of September 2024, Riot Platforms had US$6.26m of debt, up from US$700.0k a year ago. Click the image for more detail. However, its balance sheet shows it holds US$545.8m in cash, so it actually has US$539.6m net cash.

A Look At Riot Platforms' Liabilities

According to the last reported balance sheet, Riot Platforms had liabilities of US$126.2m due within 12 months, and liabilities of US$47.0m due beyond 12 months. Offsetting these obligations, it had cash of US$545.8m as well as receivables valued at US$30.7m due within 12 months. So it actually has US$403.3m more liquid assets than total liabilities.

This surplus suggests that Riot Platforms has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Riot Platforms has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Riot Platforms'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.

In the last year Riot Platforms wasn't profitable at an EBIT level, but managed to grow its revenue by 19%, to US$313m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Riot Platforms?

Although Riot Platforms had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of US$12m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 3 warning signs we've spotted with Riot Platforms (including 2 which are significant) .

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

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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.