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David Iben put it well when he said: “Volatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. We can see that Marvell Technology, Inc. (NASDAQ: MRVL) uses debt in its business. But does this debt concern shareholders?
Why Does Debt Bring Risk?
Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. Ultimately, if the company can’t meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. When we think of a business’s use of debt, we first look at cash flow and debt together.
See our latest review for Marvell Technology
What is the debt of Marvell Technology?
You can click on the graph below for the historical figures, but it shows that as of July 2021, Marvell Technology was in debt of US $ 4.70 billion, an increase from US $ 1.44 billion. , over one year. On the other hand, it has $ 559.6 million in cash, resulting in net debt of around $ 4.14 billion.
How strong is Marvell Technology’s balance sheet?
We can see from the most recent balance sheet that Marvell Technology had liabilities of US $ 1.08 billion due within one year and liabilities of US $ 5.01 billion due beyond. . In compensation for these obligations, it had cash of US $ 559.6 million as well as receivables valued at US $ 785.6 million due within 12 months. It therefore has liabilities totaling US $ 4.75 billion more than its cash and short-term receivables combined.
Of course, Marvell Technology has a titanic market cap of $ 51.9 billion, so those liabilities are likely manageable. Having said that, it is clear that we must continue to monitor his record lest it get worse. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Marvell Technology can strengthen its balance sheet over time. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Year over 12 months, Marvell Technology reported revenue of US $ 3.5 billion, a gain of 23%, although it reported no profit before interest and taxes. Hopefully the business will be able to move towards profitability.
Emptor Warning
Despite revenue growth, Marvell Technology has consistently recorded a loss of profit before interest and taxes (EBIT) over the past year. To be precise, the EBIT loss amounted to US $ 40 million. When we look at this and recall the liabilities on its balance sheet, versus the cash flow, it seems unwise to us that the company has debt. Quite frankly, we believe the record is far from up to par, although it could improve over time. For example, we wouldn’t want to see a repeat of last year’s $ 371 million loss. So we think this title is quite risky. The balance sheet is clearly the area you need to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist off the balance sheet. For example – Marvell Technology has 2 warning signs we think you should be aware.
If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash net growth stocks.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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