Is Marrone Bio Innovations (NASDAQ:MBII) 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. We note that Marrone Bio Innovations, Inc. (NASDAQ:MBII) does have debt on its balance sheet. 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Marrone Bio Innovations

How Much Debt Does Marrone Bio Innovations Carry?

The chart below, which you can click on for greater detail, shows that Marrone Bio Innovations had US$25.0m in debt in September 2020; about the same as the year before. 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' Balance Sheet?

The latest balance sheet data shows that Marrone Bio Innovations had liabilities of US$22.9m due within a year, and liabilities of US$26.0m falling due after that. On the other hand, it had cash of US$8.97m and US$6.83m worth of receivables due within a year. So it has liabilities totalling US$33.2m more than its cash and near-term receivables, combined.

Since publicly traded Marrone Bio Innovations shares are worth a total of US$425.4m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 Marrone Bio Innovations's ability to maintain a healthy balance sheet going forward. 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 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

Despite the top line growth, Marrone Bio Innovations still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$15m at the EBIT level. 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. However, it doesn't help that it burned through US$15m of cash over the last year. So to be blunt we think it is risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Marrone Bio Innovations you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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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