The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We can see that MongoDB, Inc. (NASDAQ:MDB) does use debt in its business. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
Check out our latest analysis for MongoDB
What Is MongoDB's Net Debt?
The chart below, which you can click on for greater detail, shows that MongoDB had US$1.14b in debt in April 2023; about the same as the year before. However, its balance sheet shows it holds US$1.90b in cash, so it actually has US$762.7m net cash.
How Healthy Is MongoDB's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that MongoDB had liabilities of US$532.6m due within 12 months and liabilities of US$1.26b due beyond that. Offsetting this, it had US$1.90b in cash and US$211.6m in receivables that were due within 12 months. So it actually has US$326.9m more liquid assets than total liabilities.
Having regard to MongoDB's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$28.3b 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! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if MongoDB 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, MongoDB reported revenue of US$1.4b, which is a gain of 40%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.
So How Risky Is MongoDB?
Although MongoDB had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$24m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We think its revenue growth of 40% is a good sign. We'd see further strong growth as an optimistic indication. 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. Case in point: We've spotted 3 warning signs for MongoDB you should be aware of.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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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.
About NasdaqGM:MDB
Flawless balance sheet with reasonable growth potential.
