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Is MiMedx Group (NASDAQ:MDXG) Using Too Much Debt?

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Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies MiMedx Group, Inc. (NASDAQ:MDXG) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for MiMedx Group

How Much Debt Does MiMedx Group Carry?

The chart below, which you can click on for greater detail, shows that MiMedx Group had US$48.2m in debt in March 2022; about the same as the year before. However, its balance sheet shows it holds US$75.7m in cash, so it actually has US$27.4m net cash.

debt-equity-history-analysis
debt-equity-history-analysis

A Look At MiMedx Group's Liabilities

We can see from the most recent balance sheet that MiMedx Group had liabilities of US$36.6m falling due within a year, and liabilities of US$52.8m due beyond that. On the other hand, it had cash of US$75.7m and US$38.4m worth of receivables due within a year. So it can boast US$24.6m more liquid assets than total liabilities.

This short term liquidity is a sign that MiMedx Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that MiMedx Group has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if MiMedx Group 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.

In the last year MiMedx Group wasn't profitable at an EBIT level, but managed to grow its revenue by 4.5%, to US$258m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is MiMedx Group?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year MiMedx Group had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$7.1m and booked a US$19m accounting loss. Given it only has net cash of US$27.4m, the company may need to raise more capital if it doesn't reach break-even soon. 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for MiMedx Group that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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