Is Minim (NASDAQ:MINM) Using Debt Sensibly?

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.' 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. Importantly, Minim, Inc. (NASDAQ:MINM) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Minim

What Is Minim's Debt?

As you can see below, at the end of September 2021, Minim had US$7.09m of debt, up from US$583.3k a year ago. Click the image for more detail. But on the other hand it also has US$18.9m in cash, leading to a US$11.8m net cash position.

A Look At Minim's Liabilities

Zooming in on the latest balance sheet data, we can see that Minim had liabilities of US$23.7m due within 12 months and liabilities of US$747.4k due beyond that. Offsetting these obligations, it had cash of US$18.9m as well as receivables valued at US$11.6m due within 12 months. So it can boast US$5.95m more liquid assets than total liabilities.

This short term liquidity is a sign that Minim could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Minim 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 ultimately the future profitability of the business will decide if Minim 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.

In the last year Minim wasn't profitable at an EBIT level, but managed to grow its revenue by 31%, to US$59m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Minim?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Minim lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$18m and booked a US$1.6m accounting loss. With only US$11.8m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, Minim may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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. For instance, we've identified 5 warning signs for Minim (1 shouldn't be ignored) you should be aware of.

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.