Health Check: How Prudently Does Millennium Group International Holdings (NASDAQ:MGIH) Use Debt?

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.' 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. Importantly, Millennium Group International Holdings Limited (NASDAQ:MGIH) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Millennium Group International Holdings

What Is Millennium Group International Holdings's Debt?

As you can see below, Millennium Group International Holdings had US$5.58m of debt at June 2024, down from US$13.4m a year prior. But on the other hand it also has US$13.3m in cash, leading to a US$7.76m net cash position.

How Healthy Is Millennium Group International Holdings' Balance Sheet?

We can see from the most recent balance sheet that Millennium Group International Holdings had liabilities of US$12.1m falling due within a year, and liabilities of US$456.9k due beyond that. Offsetting these obligations, it had cash of US$13.3m as well as receivables valued at US$9.46m due within 12 months. So it actually has US$10.2m more liquid assets than total liabilities.

This excess liquidity is a great indication that Millennium Group International Holdings' balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Millennium Group International Holdings 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 you can't view debt in total isolation; since Millennium Group International Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Millennium Group International Holdings had a loss before interest and tax, and actually shrunk its revenue by 16%, to US$39m. That's not what we would hope to see.

So How Risky Is Millennium Group International Holdings?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Millennium Group International Holdings had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$6.5m and booked a US$8.8m accounting loss. But at least it has US$7.76m on the balance sheet to spend on growth, near-term. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. 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 2 warning signs for Millennium Group International Holdings (of which 1 can't be ignored!) 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. 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.