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

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, MongoDB, Inc. (NASDAQ:MDB) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for MongoDB

How Much Debt Does MongoDB Carry?

As you can see below, at the end of July 2020, MongoDB had US$935.3m of debt, up from US$223.4m a year ago. Click the image for more detail. But it also has US$974.9m in cash to offset that, meaning it has US$39.6m net cash.

How Strong Is MongoDB's Balance Sheet?

According to the last reported balance sheet, MongoDB had liabilities of US$252.7m due within 12 months, and liabilities of US$1.05b due beyond 12 months. Offsetting these obligations, it had cash of US$974.9m as well as receivables valued at US$87.2m due within 12 months. So it has liabilities totalling US$244.9m more than its cash and near-term receivables, combined.

Having regard to MongoDB's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$13.1b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, 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 45%, to US$502m. 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 in the last year MongoDB had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$43m of cash and made a loss of US$223m. But the saving grace is the US$39.6m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. MongoDB's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. 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. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for MongoDB (of which 1 is concerning!) 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.

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