We Think MiMedx Group (NASDAQ:MDXG) Can Stay On Top Of Its Debt

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 note that MiMedx Group, Inc. (NASDAQ:MDXG) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. 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?

The chart below, which you can click on for greater detail, shows that MiMedx Group had US$49.0m in debt in September 2023; about the same as the year before. But on the other hand it also has US$81.2m in cash, leading to a US$32.2m net cash position.

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$43.6m due within 12 months and liabilities of US$51.6m due beyond that. Offsetting these obligations, it had cash of US$81.2m as well as receivables valued at US$49.0m due within 12 months. So it can boast US$35.0m 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!

Notably, MiMedx Group made a loss at the EBIT level, last year, but improved that to positive EBIT of US$17m in the last twelve months. 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. MiMedx Group may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last year, MiMedx Group's free cash flow amounted to 45% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case MiMedx Group has US$32.2m in net cash and a decent-looking balance sheet. So we don't have any problem with MiMedx Group's use of debt. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for MiMedx Group you should know about.

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.