Legendary fund manager Li Lu (whom Charlie Munger once backed) once said, “The greatest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. Like many other companies Mandiant, Inc. (NASDAQ:MNDT) uses debt. But the real question is whether this debt makes the business risky.
What risk does debt carry?
Debt helps a business until the business struggles to pay it back, either with new capital or with free cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more frequent (but still costly) event is when a company has to issue shares at bargain prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, however, debt can be a great tool for companies that need capital to invest in growth at high rates of return. The first step when considering a company’s debt levels is to consider its cash and debt together.
See our latest analysis for Mandiant
What is Mandiant’s debt?
You can click on the graph below for historical numbers, but it shows that as of December 2021, Mandiant had $1.01 billion in debt, an increase of $960.9 million, year-over-year. But he also has $2.19 billion in cash to offset that, which means he has $1.19 billion in net cash.
How healthy is Mandiant’s balance sheet?
The latest balance sheet data shows that Mandiant had liabilities of $971.2 million due within the year, and liabilities of $718.5 million due thereafter. On the other hand, it had a cash position of 2.19 billion dollars and 146.5 million dollars in receivables at less than one year. He can therefore boast of having $650.6 million in cash more than total Passives.
This excess liquidity suggests that Mandiant is taking a cautious approach to debt. Due to her strong net asset position, she is unlikely to run into problems with her lenders. In short, Mandiant has clean cash, so it’s fair to say that it doesn’t have a lot of debt! When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Mandiant can strengthen its balance sheet over time. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.
Last year, Mandiant posted a loss before interest and taxes and actually cut its revenue by 49%, to $483 million. It makes us nervous, to say the least.
So how risky is Mandiant?
Although Mandiant posted a loss in earnings before interest and tax (EBIT) in the past twelve months, it generated positive free cash flow of $39 million. So, although it is loss-making, it does not seem to have too much short-term balance sheet risk, given net cash. We will feel more comfortable with the stock once EBIT is positive, given the weak revenue growth. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist outside of the balance sheet. For example, we found 2 warning signs for Mandiant which you should be aware of before investing here.
In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeat present.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.