The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Globalstar, Inc. (NASDAQ:GSAT) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

What Risk Does Debt Bring?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Globalstar's Debt?

As you can see below, at the end of December 2024, Globalstar had US$511.4m of debt, up from US$360.3m a year ago. Click the image for more detail. On the flip side, it has US$391.2m in cash leading to net debt of about US$120.3m.

How Strong Is Globalstar's Balance Sheet?

We can see from the most recent balance sheet that Globalstar had liabilities of US$141.5m falling due within a year, and liabilities of US$1.21b due beyond that. On the other hand, it had cash of US$391.2m and US$29.5m worth of receivables due within a year. So it has liabilities totalling US$930.7m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Globalstar has a market capitalization of US$2.44b, and so it could probably strengthen its balance sheet by raising capital if it needed to. 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 Globalstar can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

View our latest analysis for Globalstar

In the last year Globalstar wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to US$250m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Globalstar produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$393k 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. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of US$74m. In the meantime, we consider the stock very risky. For riskier companies like Globalstar I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself .

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.