Is Multilaser Industrial (BVMF:MLAS3) Using Debt Sensibly?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Multilaser Industrial S.A. (BVMF:MLAS3) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Multilaser Industrial

What Is Multilaser Industrial's Net Debt?

The image below, which you can click on for greater detail, shows that Multilaser Industrial had debt of R$570.3m at the end of September 2024, a reduction from R$997.1m over a year. However, its balance sheet shows it holds R$739.9m in cash, so it actually has R$169.6m net cash.

A Look At Multilaser Industrial's Liabilities

We can see from the most recent balance sheet that Multilaser Industrial had liabilities of R$1.33b falling due within a year, and liabilities of R$716.1m due beyond that. Offsetting these obligations, it had cash of R$739.9m as well as receivables valued at R$1.48b due within 12 months. So it can boast R$177.1m more liquid assets than total liabilities.

This excess liquidity suggests that Multilaser Industrial is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Multilaser Industrial boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Multilaser Industrial'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 Multilaser Industrial had a loss before interest and tax, and actually shrunk its revenue by 13%, to R$3.3b. That's not what we would hope to see.

So How Risky Is Multilaser Industrial?

While Multilaser Industrial lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow R$366m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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 Multilaser Industrial .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.