These 4 Measures Indicate That ManTech International (NASDAQ:MANT) Is Using Debt Safely

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. We can see that ManTech International Corporation (NASDAQ:MANT) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for ManTech International

What Is ManTech International's Net Debt?

As you can see below, ManTech International had US$15.0m of debt at December 2020, down from US$36.5m a year prior. But it also has US$41.2m in cash to offset that, meaning it has US$26.2m net cash.

A Look At ManTech International's Liabilities

The latest balance sheet data shows that ManTech International had liabilities of US$348.8m due within a year, and liabilities of US$285.4m falling due after that. Offsetting this, it had US$41.2m in cash and US$422.6m in receivables that were due within 12 months. So its liabilities total US$170.5m more than the combination of its cash and short-term receivables.

Of course, ManTech International has a market capitalization of US$3.17b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, ManTech International also has more cash than debt, so we're pretty confident it can manage its debt safely.

And we also note warmly that ManTech International grew its EBIT by 14% last year, making its debt load easier to handle. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if ManTech International 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While ManTech International 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 three years, ManTech International generated free cash flow amounting to a very robust 96% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing up

While it is always sensible to look at a company's total liabilities, it is very reassuring that ManTech International has US$26.2m in net cash. The cherry on top was that in converted 96% of that EBIT to free cash flow, bringing in US$171m. So is ManTech International's debt a risk? It doesn't seem so to us. 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 ManTech International you should know about.

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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