Is Mobvista (HKG:1860) Using Debt Sensibly?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Mobvista Inc. (HKG:1860) makes use of 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. 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 Mobvista

What Is Mobvista's Debt?

The image below, which you can click on for greater detail, shows that at September 2023 Mobvista had debt of US$95.3m, up from US$75.5m in one year. However, its balance sheet shows it holds US$118.7m in cash, so it actually has US$23.5m net cash.

How Strong Is Mobvista's Balance Sheet?

The latest balance sheet data shows that Mobvista had liabilities of US$292.5m due within a year, and liabilities of US$81.6m falling due after that. Offsetting these obligations, it had cash of US$118.7m as well as receivables valued at US$183.1m due within 12 months. So it has liabilities totalling US$72.3m more than its cash and near-term receivables, combined.

Since publicly traded Mobvista shares are worth a total of US$635.9m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Mobvista boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Mobvista can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Mobvista wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to US$1.0b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Mobvista?

Although Mobvista had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of US$16m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example - Mobvista has 1 warning sign we think you should be aware of.

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.