Here's Why Motus GI Holdings (NASDAQ:MOTS) Can Manage Its Debt Despite Losing Money

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Motus GI Holdings, Inc. (NASDAQ:MOTS) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. 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.

Check out our latest analysis for Motus GI Holdings

What Is Motus GI Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2020 Motus GI Holdings had debt of US$7.98m, up from none in one year. But it also has US$23.7m in cash to offset that, meaning it has US$15.7m net cash.

A Look At Motus GI Holdings' Liabilities

According to the last reported balance sheet, Motus GI Holdings had liabilities of US$10.5m due within 12 months, and liabilities of US$2.22m due beyond 12 months. Offsetting this, it had US$23.7m in cash and US$41.0k in receivables that were due within 12 months. So it can boast US$11.0m more liquid assets than total liabilities.

This surplus suggests that Motus GI Holdings is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that Motus GI Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Motus GI Holdings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Since Motus GI Holdings doesn't have significant operating revenue, shareholders must hope it'll ramp sales of its new medical tech as soon as possible.

So How Risky Is Motus GI Holdings?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Motus GI Holdings lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$20m and booked a US$21m accounting loss. Given it only has net cash of US$15.7m, the company may need to raise more capital if it doesn't reach break-even soon. The good news for shareholders is that Motus GI Holdings has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example Motus GI Holdings has 5 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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. 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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