Does Everspin Technologies (NASDAQ:MRAM) Have A Healthy Balance Sheet?
Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 note that Everspin Technologies, Inc. (NASDAQ:MRAM) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for Everspin Technologies
What Is Everspin Technologies's Debt?
As you can see below, Everspin Technologies had US$7.99m of debt, at December 2020, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$14.6m in cash offsetting this, leading to net cash of US$6.61m.
How Strong Is Everspin Technologies' Balance Sheet?
According to the last reported balance sheet, Everspin Technologies had liabilities of US$10.2m due within 12 months, and liabilities of US$4.88m due beyond 12 months. Offsetting these obligations, it had cash of US$14.6m as well as receivables valued at US$7.61m due within 12 months. So it actually has US$7.09m more liquid assets than total liabilities.
This short term liquidity is a sign that Everspin Technologies could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Everspin Technologies has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Everspin Technologies 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.
Over 12 months, Everspin Technologies reported revenue of US$42m, which is a gain of 12%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
So How Risky Is Everspin Technologies?
Statistically speaking companies that lose money are riskier than those that make money. And we do note that Everspin Technologies had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$3.2m of cash and made a loss of US$8.5m. However, it has net cash of US$6.61m, so it has a bit of time before it will need more capital. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Everspin Technologies you should know about.
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.
This article by Simply Wall St is general in nature. 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.
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