Is MiMedx Group (NASDAQ:MDXG) Using Debt In A Risky Way?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies MiMedx Group, Inc. (NASDAQ:MDXG) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. 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, 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.

See our latest analysis for MiMedx Group

How Much Debt Does MiMedx Group Carry?

The chart below, which you can click on for greater detail, shows that MiMedx Group had US$48.8m in debt in June 2023; about the same as the year before. But it also has US$68.7m in cash to offset that, meaning it has US$19.8m net cash.

A Look At MiMedx Group's Liabilities

Zooming in on the latest balance sheet data, we can see that MiMedx Group had liabilities of US$44.5m due within 12 months and liabilities of US$52.1m due beyond that. Offsetting this, it had US$68.7m in cash and US$49.0m in receivables that were due within 12 months. So it actually has US$21.1m more liquid assets than total liabilities.

This short term liquidity is a sign that MiMedx Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, MiMedx Group boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if MiMedx Group can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, MiMedx Group reported revenue of US$295m, which is a gain of 15%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is MiMedx Group?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that MiMedx Group had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$4.0m of cash and made a loss of US$19m. Given it only has net cash of US$19.8m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. We've identified 1 warning sign with MiMedx Group , and understanding them should be part of your investment process.

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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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.