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.' 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. Importantly, Marvell Technology, Inc. (NASDAQ:MRVL) does carry debt. But the real question is whether this debt is making the company risky.
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 Marvell Technology
What Is Marvell Technology's Debt?
As you can see below, Marvell Technology had US$4.15b of debt at May 2024, down from US$4.67b a year prior. However, it also had US$847.7m in cash, and so its net debt is US$3.30b.
A Look At Marvell Technology's Liabilities
According to the last reported balance sheet, Marvell Technology had liabilities of US$1.47b due within 12 months, and liabilities of US$4.54b due beyond 12 months. Offsetting these obligations, it had cash of US$847.7m as well as receivables valued at US$881.9m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$4.28b.
Given Marvell Technology has a humongous market capitalization of US$63.7b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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 Marvell Technology 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, Marvell Technology made a loss at the EBIT level, and saw its revenue drop to US$5.3b, which is a fall of 7.6%. We would much prefer see growth.
Caveat Emptor
Importantly, Marvell Technology had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$462m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of US$980m. So to be blunt we do think it is risky. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Marvell Technology insider transactions.
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.
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About NasdaqGS:MRVL
Marvell Technology
Provides data infrastructure semiconductor solutions, spanning the data center core to network edge.
Exceptional growth potential with adequate balance sheet.
