Is Mercantile Ports & Logistics (LON:MPL) Using Debt Sensibly?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, Mercantile Ports & Logistics Limited (LON:MPL) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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 think about a company's use of debt, we first look at cash and debt together.

What Is Mercantile Ports & Logistics's Debt?

The image below, which you can click on for greater detail, shows that Mercantile Ports & Logistics had debt of UK£48.4m at the end of June 2025, a reduction from UK£50.9m over a year. Net debt is about the same, since the it doesn't have much cash.

How Healthy Is Mercantile Ports & Logistics' Balance Sheet?

The latest balance sheet data shows that Mercantile Ports & Logistics had liabilities of UK£51.9m due within a year, and liabilities of UK£1.27m falling due after that. Offsetting these obligations, it had cash of UK£480.0k as well as receivables valued at UK£5.80m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by UK£46.9m.

The deficiency here weighs heavily on the UK£2.41m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Mercantile Ports & Logistics would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is Mercantile Ports & Logistics'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.

See our latest analysis for Mercantile Ports & Logistics

In the last year Mercantile Ports & Logistics wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to UK£4.3m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Mercantile Ports & Logistics had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping UK£4.7m. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the reality is that it is low on liquid assets relative to liabilities, and it lost UK£31m in the last year. So we think buying this stock is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Mercantile Ports & Logistics , and understanding them should be part of your investment process.

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.