Does Multiexport Foods (SNSE:MULTIFOODS) Have A Healthy Balance Sheet?

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.' 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 note that Multiexport Foods S.A. (SNSE:MULTIFOODS) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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.

See our latest analysis for Multiexport Foods

What Is Multiexport Foods's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Multiexport Foods had US$202.0m of debt, an increase on US$117.2m, over one year. On the flip side, it has US$6.44m in cash leading to net debt of about US$195.5m.

How Strong Is Multiexport Foods' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Multiexport Foods had liabilities of US$168.9m due within 12 months and liabilities of US$186.9m due beyond that. Offsetting these obligations, it had cash of US$6.44m as well as receivables valued at US$71.1m due within 12 months. So it has liabilities totalling US$278.3m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Multiexport Foods is worth US$553.8m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Multiexport Foods's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Multiexport Foods had a loss before interest and tax, and actually shrunk its revenue by 16%, to US$476m. That's not what we would hope to see.

Caveat Emptor

Not only did Multiexport Foods's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping US$133m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$80m in negative free cash flow over the last twelve months. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Multiexport Foods is showing 3 warning signs in our investment analysis , and 2 of those can't be ignored...

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.

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