Does Marchex (NASDAQ:MCHX) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 Marchex, Inc. (NASDAQ:MCHX) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Marchex

How Much Debt Does Marchex Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2021 Marchex had US$5.14m of debt, an increase on none, over one year. However, its balance sheet shows it holds US$28.2m in cash, so it actually has US$23.0m net cash.

A Look At Marchex's Liabilities

We can see from the most recent balance sheet that Marchex had liabilities of US$19.2m falling due within a year, and liabilities of US$2.97m due beyond that. On the other hand, it had cash of US$28.2m and US$6.87m worth of receivables due within a year. So it can boast US$12.9m more liquid assets than total liabilities.

This surplus suggests that Marchex has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Marchex boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Marchex can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Marchex reported revenue of US$52m, which is a gain of 30%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Marchex?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Marchex had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$8.1m of cash and made a loss of US$22m. While this does make the company a bit risky, it's important to remember it has net cash of US$23.0m. That kitty means the company can keep spending for growth for at least two years, at current rates. Marchex's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Marchex you should know about.

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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