Health Check: How Prudently Does MakeMyTrip (NASDAQ:MMYT) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, MakeMyTrip Limited (NASDAQ:MMYT) does carry debt. But the more important question is: how much risk is that debt creating?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for MakeMyTrip

How Much Debt Does MakeMyTrip Carry?

As you can see below, at the end of September 2021, MakeMyTrip had US$195.2m of debt, up from US$845.0k a year ago. Click the image for more detail. But on the other hand it also has US$463.8m in cash, leading to a US$268.5m net cash position.

How Strong Is MakeMyTrip's Balance Sheet?

According to the last reported balance sheet, MakeMyTrip had liabilities of US$194.6m due within 12 months, and liabilities of US$223.8m due beyond 12 months. Offsetting these obligations, it had cash of US$463.8m as well as receivables valued at US$24.9m due within 12 months. So it can boast US$70.3m more liquid assets than total liabilities.

This surplus suggests that MakeMyTrip has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, MakeMyTrip 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 it is future earnings, more than anything, that will determine MakeMyTrip's ability to maintain a healthy balance sheet going forward. 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, MakeMyTrip made a loss at the EBIT level, and saw its revenue drop to US$236m, which is a fall of 15%. That's not what we would hope to see.

So How Risky Is MakeMyTrip?

Although MakeMyTrip had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$26m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - MakeMyTrip has 1 warning sign we think you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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.

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