Is MiMedx Group (NASDAQ:MDXG) Weighed On By Its Debt Load?

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that MiMedx Group, Inc. (NASDAQ:MDXG) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for MiMedx Group

How Much Debt Does MiMedx Group Carry?

You can click the graphic below for the historical numbers, but it shows that MiMedx Group had US$47.7m of debt in December 2020, down from US$65.7m, one year before. But it also has US$95.8m in cash to offset that, meaning it has US$48.1m net cash.

How Healthy Is MiMedx Group's Balance Sheet?

The latest balance sheet data shows that MiMedx Group had liabilities of US$59.2m due within a year, and liabilities of US$51.5m falling due after that. On the other hand, it had cash of US$95.8m and US$45.5m worth of receivables due within a year. So it can boast US$30.7m 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! When analysing debt levels, the balance sheet is the obvious place to start. 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 had a loss before interest and tax, and actually shrunk its revenue by 17%, to US$248m. That's not what we would hope to see.

So How Risky Is MiMedx Group?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months MiMedx Group lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$35m of cash and made a loss of US$83m. Given it only has net cash of US$48.1m, 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. 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 MiMedx Group (of which 1 can't be ignored!) you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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