Is MIND Technology (NASDAQ:MIND) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, MIND Technology, Inc. (NASDAQ:MIND) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. 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.

See our latest analysis for MIND Technology

How Much Debt Does MIND Technology Carry?

As you can see below, at the end of October 2020, MIND Technology had US$1.61m of debt, up from none a year ago. Click the image for more detail. But it also has US$2.66m in cash to offset that, meaning it has US$1.06m net cash.

How Strong Is MIND Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that MIND Technology had liabilities of US$6.22m due within 12 months and liabilities of US$3.62m due beyond that. Offsetting this, it had US$2.66m in cash and US$5.61m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.57m.

Of course, MIND Technology has a market capitalization of US$31.2m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, MIND Technology 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 ultimately the future profitability of the business will decide if MIND Technology can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, MIND Technology reported revenue of US$36m, which is a gain of 8.9%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is MIND Technology?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year MIND Technology had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$5.4m of cash and made a loss of US$19m. However, it has net cash of US$1.06m, so it has a bit of time before it will need more capital. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example MIND Technology has 4 warning signs (and 1 which can't be ignored) we think you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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