Is MiMedx Group (NASDAQ:MDXG) Using Too Much 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.' 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 is this debt a concern to shareholders?

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for MiMedx Group

How Much Debt Does MiMedx Group Carry?

As you can see below, MiMedx Group had US$48.1m of debt, at December 2021, which is about the same as the year before. You can click the chart for greater detail. But it also has US$87.1m in cash to offset that, meaning it has US$39.0m net cash.

How Strong Is MiMedx Group's Balance Sheet?

The latest balance sheet data shows that MiMedx Group had liabilities of US$42.4m due within a year, and liabilities of US$53.0m falling due after that. Offsetting this, it had US$87.1m in cash and US$41.1m in receivables that were due within 12 months. So it actually has US$32.8m more liquid assets than total liabilities.

This surplus suggests that MiMedx Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, MiMedx Group 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 it is future earnings, more than anything, that will determine MiMedx Group'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 MiMedx Group wasn't profitable at an EBIT level, but managed to grow its revenue by 4.2%, to US$259m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is MiMedx Group?

By their very nature companies that are losing money are more risky than those with a long history of profitability. 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$5.5m of cash and made a loss of US$16m. Given it only has net cash of US$39.0m, 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. 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. For example - MiMedx Group has 3 warning signs we think you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.