Is MOVE Logistics Group (NZSE:MOV) Using Debt In A Risky Way?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. As with many other companies MOVE Logistics Group Limited (NZSE:MOV) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for MOVE Logistics Group

What Is MOVE Logistics Group's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2024 MOVE Logistics Group had debt of NZ$26.7m, up from NZ$24.3m in one year. On the flip side, it has NZ$9.70m in cash leading to net debt of about NZ$17.0m.

How Strong Is MOVE Logistics Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that MOVE Logistics Group had liabilities of NZ$97.3m due within 12 months and liabilities of NZ$157.6m due beyond that. Offsetting these obligations, it had cash of NZ$9.70m as well as receivables valued at NZ$39.8m due within 12 months. So it has liabilities totalling NZ$205.4m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the NZ$23.6m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, MOVE Logistics Group would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since MOVE Logistics Group will need earnings to service that debt. 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 MOVE Logistics Group had a loss before interest and tax, and actually shrunk its revenue by 15%, to NZ$296m. That's not what we would hope to see.

Caveat Emptor

While MOVE Logistics Group's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable NZ$21m at the EBIT level. 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. Sure, the company might have a nice story about how they are going on to a brighter future. But the reality is that it is low on liquid assets relative to liabilities, and it lost NZ$48m in the last year. So we're not very excited about owning this stock. Its too risky for us. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for MOVE Logistics Group (of which 1 is a bit unpleasant!) you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.