Health Check: How Prudently Does Materialise (NASDAQ:MTLS) 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 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. As with many other companies Materialise NV (NASDAQ:MTLS) makes use of debt. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Materialise

What Is Materialise's Net Debt?

The image below, which you can click on for greater detail, shows that Materialise had debt of €72.9m at the end of December 2022, a reduction from €90.5m over a year. However, its balance sheet shows it holds €140.9m in cash, so it actually has €67.9m net cash.

How Healthy Is Materialise's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Materialise had liabilities of €106.1m due within 12 months and liabilities of €76.2m due beyond that. Offsetting this, it had €140.9m in cash and €51.0m in receivables that were due within 12 months. So it actually has €9.58m more liquid assets than total liabilities.

This short term liquidity is a sign that Materialise could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Materialise boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Materialise's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Materialise reported revenue of €232m, which is a gain of 13%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Materialise?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Materialise had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through €64k of cash and made a loss of €2.1m. Given it only has net cash of €67.9m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. For riskier companies like Materialise I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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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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.