Berkshire Hathaway’s Charlie Munger-backed external fund manager Li Lu doesn’t care when he says, “The biggest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital ”. So it seems like smart money knows that debt – which is usually linked to bankruptcies – is a very important factor when you assess the risk of a business. We can see that MiMedx Group, Inc. (NASDAQ: MDXG) uses debt in its business. But does this debt worry shareholders?
Why is debt risky?
Generally speaking, debt only becomes a real problem when a business cannot easily repay it, either by raising capital or with its own cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. While it’s not too common, we often see indebted companies continually diluting shareholders because lenders are forcing them to raise capital at a difficult price. That said, the most common situation is where a business manages its debt reasonably well – and to its advantage. When we think of a business’s use of debt, we first look at cash flow and debt together.
Discover our latest analysis for MiMedx Group
How much debt does MiMedx Group have?
You can click on the graph below for historical numbers, but it shows MiMedx Group had $ 47.7 million in debt as of December 2020, up from $ 65.7 million a year earlier. But he also has US $ 95.8 million in cash to make up for that, which means he has a net cash position of US $ 48.1 million.
How healthy is MiMedx Group’s balance sheet?
The latest balance sheet data shows that MiMedx Group had liabilities of US $ 59.2 million due within one year, and liabilities of US $ 51.5 million due thereafter. In contrast, it had US $ 95.8 million in cash and US $ 45.5 million in receivables due within one year. He can therefore boast of $ 30.7 million in liquid assets more than total Liabilities.
This surplus suggests that MiMedx Group has a prudent balance sheet and could probably eliminate its debt without too much difficulty. In short, MiMedx Group has a net cash flow, so it’s fair to say that it doesn’t have a heavy debt! When analyzing debt levels, the balance sheet is the obvious starting point. But it is future profits, more than anything, that will determine MiMedx Group’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 analyst earnings forecast report interesting.
Last year, MiMedx Group recorded a loss before interest and taxes and actually reduced its revenue by 17% to US $ 248 million. This is not what we hope to see.
So, how risky is the MiMedx group?
We are convinced that loss-making companies are, in general, riskier than profitable ones. And the point is that over the past twelve months MiMedx Group has lost money in earnings before interest and taxes (EBIT). Indeed, during that period, he burned $ 35 million in cash and made a loss of $ 83 million. Since it only has a net cash position of US $ 48.1 million, the company may need to raise more capital if it does not quickly reach its breakeven point. Overall, its balance sheet doesn’t look too risky at the moment, but we’re still cautious until we see positive free cash flow. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist off the balance sheet. These risks can be difficult to spot. Every company has them, and we’ve spotted 2 warning signs for MiMedx Group (of which 1 cannot be ignored!) you should know.
Of course, if you are the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash net growth stocks, today.
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