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

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, MiMedx Group, Inc. (NASDAQ:MDXG) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. When we examine debt levels, we first consider both cash and debt levels, 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$19.5m of debt in March 2024, down from US$48.7m, one year before. But on the other hand it also has US$48.5m in cash, leading to a US$29.0m net cash position.

How Healthy Is MiMedx Group's Balance Sheet?

We can see from the most recent balance sheet that MiMedx Group had liabilities of US$42.2m falling due within a year, and liabilities of US$23.7m due beyond that. On the other hand, it had cash of US$48.5m and US$57.0m worth of receivables due within a year. So it can boast US$39.6m 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. Simply put, the fact that MiMedx Group has more cash than debt is arguably a good indication that it can manage its debt safely.

It was also good to see that despite losing money on the EBIT line last year, MiMedx Group turned things around in the last 12 months, delivering and EBIT of US$51m. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if MiMedx Group 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While MiMedx Group has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last year, MiMedx Group produced sturdy free cash flow equating to 68% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case MiMedx Group has US$29.0m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$34m, being 68% of its EBIT. So is MiMedx Group's debt a risk? It doesn't seem so to us. 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. To that end, you should learn about the 3 warning signs we've spotted with MiMedx Group (including 1 which is a bit concerning) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.