Does Mawson Infrastructure Group (NASDAQ:MIGI) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Mawson Infrastructure Group Inc. (NASDAQ:MIGI) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Mawson Infrastructure Group

What Is Mawson Infrastructure Group's Debt?

As you can see below, Mawson Infrastructure Group had US$19.1m of debt at March 2024, down from US$22.9m a year prior. However, because it has a cash reserve of US$6.37m, its net debt is less, at about US$12.8m.

How Strong Is Mawson Infrastructure Group's Balance Sheet?

We can see from the most recent balance sheet that Mawson Infrastructure Group had liabilities of US$54.2m falling due within a year, and liabilities of US$451.7k due beyond that. On the other hand, it had cash of US$6.37m and US$13.2m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$35.1m.

Given this deficit is actually higher than the company's market capitalization of US$23.5m, we think shareholders really should watch Mawson Infrastructure Group's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. 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 Mawson Infrastructure Group'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.

Over 12 months, Mawson Infrastructure Group made a loss at the EBIT level, and saw its revenue drop to US$55m, which is a fall of 25%. That makes us nervous, to say the least.

Caveat Emptor

While Mawson Infrastructure Group's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping US$51m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of US$4.2m over the last twelve months. That means it's on the risky side of things. 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 Mawson Infrastructure Group has 5 warning signs (and 3 which shouldn't be ignored) we think you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.