Marvell Technology (NASDAQ:MRVL) Is Carrying A Fair Bit Of Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. As with many other companies Marvell Technology, Inc. (NASDAQ:MRVL) makes use of debt. But the real question is whether this debt is making the company risky.

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Marvell Technology

How Much Debt Does Marvell Technology Carry?

The image below, which you can click on for greater detail, shows that Marvell Technology had debt of US$4.17b at the end of February 2024, a reduction from US$4.49b over a year. However, it does have US$950.8m in cash offsetting this, leading to net debt of about US$3.22b.

How Strong Is Marvell Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Marvell Technology had liabilities of US$1.81b due within 12 months and liabilities of US$4.58b due beyond that. Offsetting this, it had US$950.8m in cash and US$1.12b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$4.32b.

Given Marvell Technology has a humongous market capitalization of US$61.4b, 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 it is future earnings, more than anything, that will determine Marvell Technology's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Marvell Technology made a loss at the EBIT level, and saw its revenue drop to US$5.5b, which is a fall of 6.8%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Marvell Technology produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$437m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of US$933m. So we do think this stock is quite risky. For riskier companies like Marvell Technology I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

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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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.