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

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.' 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. As with many other companies MakeMyTrip Limited (NASDAQ:MMYT) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for MakeMyTrip

What Is MakeMyTrip's Net Debt?

As you can see below, at the end of March 2022, MakeMyTrip had US$202.6m of debt, up from US$188.3m a year ago. Click the image for more detail. But it also has US$477.5m in cash to offset that, meaning it has US$274.9m net cash.

A Look At MakeMyTrip's Liabilities

According to the last reported balance sheet, MakeMyTrip had liabilities of US$191.2m due within 12 months, and liabilities of US$235.1m due beyond 12 months. On the other hand, it had cash of US$477.5m and US$35.9m worth of receivables due within a year. So it can boast US$87.1m more liquid assets than total liabilities.

This short term liquidity is a sign that MakeMyTrip could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, MakeMyTrip boasts net cash, so it's fair to say it does not have a heavy debt load! 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 MakeMyTrip 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.

In the last year MakeMyTrip wasn't profitable at an EBIT level, but managed to grow its revenue by 86%, to US$304m. With any luck the company will be able to grow its way to profitability.

So How Risky Is MakeMyTrip?

While MakeMyTrip lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$6.0m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We think its revenue growth of 86% is a good sign. We'd see further strong growth as an optimistic indication. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how MakeMyTrip's profit, revenue, and operating cashflow have changed over the last few years.

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.

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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.