Health Check: How Prudently Does MongoDB (NASDAQ:MDB) Use Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 MongoDB, Inc. (NASDAQ:MDB) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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. 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.

Check out our latest analysis for MongoDB

How Much Debt Does MongoDB Carry?

As you can see below, at the end of July 2021, MongoDB had US$1.14b of debt, up from US$935.3m a year ago. Click the image for more detail. However, it does have US$1.81b in cash offsetting this, leading to net cash of US$678.1m.

How Strong Is MongoDB's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that MongoDB had liabilities of US$347.9m due within 12 months and liabilities of US$1.26b due beyond that. On the other hand, it had cash of US$1.81b and US$120.2m worth of receivables due within a year. So it can boast US$327.3m more liquid assets than total liabilities.

This state of affairs indicates that MongoDB's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$37.5b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, MongoDB boasts net cash, so it's fair to say it does not have a heavy debt load! 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 MongoDB's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year MongoDB wasn't profitable at an EBIT level, but managed to grow its revenue by 40%, to US$702m. With any luck the company will be able to grow its way to profitability.

So How Risky Is MongoDB?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months MongoDB lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$45m and booked a US$290m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$678.1m. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, MongoDB may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for MongoDB you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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