Would Marvell Technology (NASDAQ:MRVL) Be Better Off With Less 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. We can see that Marvell Technology, Inc. (NASDAQ:MRVL) 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Marvell Technology

What Is Marvell Technology's Net Debt?

As you can see below, Marvell Technology had US$4.13b of debt, at August 2024, which is about the same as the year before. You can click the chart for greater detail. However, because it has a cash reserve of US$808.7m, its net debt is less, at about US$3.32b.

How Healthy Is Marvell Technology's Balance Sheet?

The latest balance sheet data shows that Marvell Technology had liabilities of US$1.55b due within a year, and liabilities of US$4.54b falling due after that. Offsetting this, it had US$808.7m in cash and US$1.06b in receivables that were due within 12 months. So its liabilities total US$4.22b more than the combination of its cash and short-term receivables.

Since publicly traded Marvell Technology shares are worth a very impressive total of US$69.2b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Marvell Technology 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.

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 5.9%. That's not what we would hope to see.

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$395m. 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. We would feel better if it turned its trailing twelve month loss of US$966m into a profit. So we do think this stock is quite risky. 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. For example - Marvell Technology has 1 warning sign we think you should be aware of.

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.