Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that MongoDB, Inc. (NASDAQ:MDB) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.
How Much Debt Does MongoDB Carry?
You can click the graphic below for the historical numbers, but it shows that as of October 2021 MongoDB had US$1.14b of debt, an increase on US$947.7m, over one year. But it also has US$1.80b in cash to offset that, meaning it has US$665.4m net cash.
A Look At MongoDB's Liabilities
Zooming in on the latest balance sheet data, we can see that MongoDB had liabilities of US$432.2m due within 12 months and liabilities of US$1.26b due beyond that. On the other hand, it had cash of US$1.80b and US$182.7m worth of receivables due within a year. So it actually has US$296.9m more liquid assets than total liabilities.
Having regard to MongoDB's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$25.1b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, MongoDB boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if MongoDB can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, MongoDB reported revenue of US$778m, which is a gain of 43%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is MongoDB?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months MongoDB lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$39m and booked a US$298m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$665.4m. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, MongoDB may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 4 warning signs we've spotted with MongoDB .
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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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.