Does MLG Oz (ASX:MLG) 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.' 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 can see that MLG Oz Limited (ASX:MLG) does use debt in its business. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is MLG Oz's Debt?

The image below, which you can click on for greater detail, shows that at June 2025 MLG Oz had debt of AU$6.30m, up from AU$433.0k in one year. But it also has AU$9.24m in cash to offset that, meaning it has AU$2.94m net cash.

How Healthy Is MLG Oz's Balance Sheet?

We can see from the most recent balance sheet that MLG Oz had liabilities of AU$107.1m falling due within a year, and liabilities of AU$67.0m due beyond that. Offsetting these obligations, it had cash of AU$9.24m as well as receivables valued at AU$74.4m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by AU$90.4m.

This is a mountain of leverage relative to its market capitalization of AU$137.9m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. Despite its noteworthy liabilities, MLG Oz boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for MLG Oz

We note that MLG Oz grew its EBIT by 21% in the last year, and that should make it easier to pay down debt, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine MLG Oz'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 report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While MLG Oz has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, MLG Oz actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While MLG Oz does have more liabilities than liquid assets, it also has net cash of AU$2.94m. The cherry on top was that in converted 148% of that EBIT to free cash flow, bringing in AU$34m. So we are not troubled with MLG Oz's debt use. 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. To that end, you should be aware of the 1 warning sign we've spotted with MLG Oz .

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.