Does Mammoth Energy Services (NASDAQ:TUSK) Have A Healthy Balance Sheet?

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. We can see that Mammoth Energy Services, Inc. (NASDAQ:TUSK) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. 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. 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.

See our latest analysis for Mammoth Energy Services

What Is Mammoth Energy Services's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 Mammoth Energy Services had US$95.5m of debt, an increase on US$75.7m, over one year. However, it does have US$9.88m in cash offsetting this, leading to net debt of about US$85.6m.

How Healthy Is Mammoth Energy Services' Balance Sheet?

The latest balance sheet data shows that Mammoth Energy Services had liabilities of US$144.7m due within a year, and liabilities of US$108.9m falling due after that. On the other hand, it had cash of US$9.88m and US$412.2m worth of receivables due within a year. So it actually has US$168.5m more liquid assets than total liabilities.

This surplus strongly suggests that Mammoth Energy Services has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Mammoth Energy Services 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.

Over 12 months, Mammoth Energy Services made a loss at the EBIT level, and saw its revenue drop to US$224m, which is a fall of 21%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Mammoth Energy Services's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable US$124m at the EBIT level. Having said that, the balance sheet has plenty of liquid assets for now. That should give the business time to grow its cashflow. While the stock is probably a bit risky, there may be an opportunity if the business itself improves, allowing the company to stage a recovery. 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. We've identified 5 warning signs with Mammoth Energy Services (at least 2 which can't be ignored) , and understanding them should be part of your investment process.

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.