Does Merino (ASX:MNC) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 can see that Merino & Co. Limited (ASX:MNC) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

How Much Debt Does Merino Carry?

As you can see below, Merino had AU$2.84m of debt at June 2025, down from AU$3.84m a year prior. However, it does have AU$3.08m in cash offsetting this, leading to net cash of AU$244.2k.

A Look At Merino's Liabilities

The latest balance sheet data shows that Merino had liabilities of AU$1.36m due within a year, and liabilities of AU$3.35m falling due after that. Offsetting these obligations, it had cash of AU$3.08m as well as receivables valued at AU$374.7k due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by AU$1.25m.

Since publicly traded Merino shares are worth a total of AU$10.7m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Merino also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Merino 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.

Check out our latest analysis for Merino

In the last year Merino had a loss before interest and tax, and actually shrunk its revenue by 37%, to AU$3.6m. To be frank that doesn't bode well.

So How Risky Is Merino?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Merino had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of AU$2.4m and booked a AU$2.8m accounting loss. However, it has net cash of AU$244.2k, so it has a bit of time before it will need more capital. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Merino (of which 3 don't sit too well with us!) you should know about.

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.