Yahoo Finance We Think Marvell Technology (NASDAQ:MRVL) Has A Fair Chunk Of 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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Marvell Technology, Inc. (NASDAQ:MRVL) does use debt in its business. But the real question is whether this debt is making the company risky.
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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for Marvell Technology
What Is Marvell Technology's Net Debt?
The image below, which you can click on for greater detail, shows that Marvell Technology had debt of US$4.17b at the end of February 2024, a reduction from US$4.49b over a year. On the flip side, it has US$950.8m in cash leading to net debt of about US$3.22b.
How Healthy Is Marvell Technology's Balance Sheet?
We can see from the most recent balance sheet that Marvell Technology had liabilities of US$1.81b falling due within a year, and liabilities of US$4.58b due beyond that. On the other hand, it had cash of US$950.8m and US$1.12b worth of receivables due within a year. So its liabilities total US$4.32b more than the combination of its cash and short-term receivables.
Since publicly traded Marvell Technology shares are worth a very impressive total of US$62.2b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Marvell Technology'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.
In the last year Marvell Technology had a loss before interest and tax, and actually shrunk its revenue by 6.8%, to US$5.5b. That's not what we would hope to see.
Caveat Emptor
Importantly, Marvell Technology had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$437m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of US$933m into a profit. So we do think this stock is quite risky. 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 example, we've discovered 1 warning sign for Marvell Technology that you should be aware of before investing here.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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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.
