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.' 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. We note that Manitex International, Inc. (NASDAQ:MNTX) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.
How Much Debt Does Manitex International Carry?
The image below, which you can click on for greater detail, shows that Manitex International had debt of US$42.7m at the end of December 2020, a reduction from US$59.7m over a year. However, it also had US$17.2m in cash, and so its net debt is US$25.6m.
How Strong Is Manitex International's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Manitex International had liabilities of US$64.5m due within 12 months and liabilities of US$40.2m due beyond that. On the other hand, it had cash of US$17.2m and US$30.6m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$56.9m.
While this might seem like a lot, it is not so bad since Manitex International has a market capitalization of US$162.3m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Manitex International can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, Manitex International made a loss at the EBIT level, and saw its revenue drop to US$167m, which is a fall of 22%. That makes us nervous, to say the least.
While Manitex International'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 US$1.1m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of US$13m into a profit. So in short it's a really risky stock. 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. Be aware that Manitex International is showing 1 warning sign in our investment analysis , you should know about...
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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What are the risks and opportunities for Manitex International?
Earnings are forecast to grow 115.36% per year
Does not have a meaningful market cap ($79M)
Has less than 1 year of cash runway
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