Does Marrone Bio Innovations (NASDAQ:MBII) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We can see that Marrone Bio Innovations, Inc. (NASDAQ:MBII) does use debt in its business. But the real question is whether this debt is making the company risky.

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Marrone Bio Innovations

How Much Debt Does Marrone Bio Innovations Carry?

As you can see below, Marrone Bio Innovations had US$25.0m of debt, at September 2020, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has US$8.97m in cash leading to net debt of about US$16.0m.

How Healthy Is Marrone Bio Innovations's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Marrone Bio Innovations had liabilities of US$22.9m due within 12 months and liabilities of US$26.0m due beyond that. On the other hand, it had cash of US$8.97m and US$6.83m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$33.2m.

Given Marrone Bio Innovations has a market capitalization of US$196.7m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Marrone Bio Innovations'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.

In the last year Marrone Bio Innovations wasn't profitable at an EBIT level, but managed to grow its revenue by 31%, to US$37m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

While we can certainly appreciate Marrone Bio Innovations's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. To be specific the EBIT loss came in at US$15m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$15m in negative free cash flow over the last twelve months. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Marrone Bio Innovations that you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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