Does Mainfreight (NZSE:MFT) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Mainfreight Limited (NZSE:MFT) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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. 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, 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.

How Much Debt Does Mainfreight Carry?

As you can see below, Mainfreight had NZ$124.5m of debt at March 2025, down from NZ$147.4m a year prior. However, its balance sheet shows it holds NZ$179.4m in cash, so it actually has NZ$54.9m net cash.

A Look At Mainfreight's Liabilities

Zooming in on the latest balance sheet data, we can see that Mainfreight had liabilities of NZ$851.6m due within 12 months and liabilities of NZ$1.23b due beyond that. Offsetting this, it had NZ$179.4m in cash and NZ$645.3m in receivables that were due within 12 months. So its liabilities total NZ$1.25b more than the combination of its cash and short-term receivables.

Since publicly traded Mainfreight shares are worth a total of NZ$6.27b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Mainfreight also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Mainfreight

Mainfreight's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Mainfreight'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Mainfreight has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, Mainfreight's free cash flow amounted to 39% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

Although Mainfreight's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of NZ$54.9m. So we don't have any problem with Mainfreight's use of debt. We'd be motivated to research the stock further if we found out that Mainfreight insiders have bought shares recently. If you would too, then you're in luck, since today we're sharing our list of reported insider transactions for free.

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.