We Think Marvel Decor (NSE:MDL) Has A Fair Chunk Of Debt

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 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. Importantly, Marvel Decor Limited (NSE:MDL) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Marvel Decor

What Is Marvel Decor's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 Marvel Decor had ₹126.6m of debt, an increase on ₹96.4m, over one year. On the flip side, it has ₹2.59m in cash leading to net debt of about ₹124.0m.

How Healthy Is Marvel Decor's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Marvel Decor had liabilities of ₹154.1m due within 12 months and liabilities of ₹45.2m due beyond that. Offsetting these obligations, it had cash of ₹2.59m as well as receivables valued at ₹54.6m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹142.2m.

While this might seem like a lot, it is not so bad since Marvel Decor has a market capitalization of ₹426.9m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But it is Marvel Decor'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 Marvel Decor wasn't profitable at an EBIT level, but managed to grow its revenue by 3.8%, to ₹245m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Marvel Decor produced an earnings before interest and tax (EBIT) loss. Indeed, it lost ₹4.7m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled ₹30m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. Take risks, for example - Marvel Decor has 4 warning signs (and 2 which are significant) we think you should know about.

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. 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.
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