MongoDB (NASDAQ:MDB) Has Debt But No Earnings; Should You Worry?

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.' 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 can see that MongoDB, Inc. (NASDAQ:MDB) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for MongoDB

How Much Debt Does MongoDB Carry?

The image below, which you can click on for greater detail, shows that MongoDB had debt of US$1.14b at the end of April 2022, a reduction from US$1.19b over a year. However, its balance sheet shows it holds US$1.83b in cash, so it actually has US$691.3m net cash.

How Strong Is MongoDB's Balance Sheet?

According to the last reported balance sheet, MongoDB had liabilities of US$503.7m due within 12 months, and liabilities of US$1.26b due beyond 12 months. Offsetting this, it had US$1.83b in cash and US$164.9m in receivables that were due within 12 months. So it can boast US$231.9m more liquid assets than total liabilities.

This state of affairs indicates that MongoDB's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$18.3b company is struggling for cash, we still think it's worth monitoring its 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 it is future earnings, more than anything, that will determine MongoDB's ability to maintain a healthy balance sheet going forward. 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, MongoDB reported revenue of US$978m, which is a gain of 52%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

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. Indeed, in that time it burnt through US$1.6m of cash and made a loss of US$320m. But the saving grace is the US$691.3m on the balance sheet. That means it could keep spending at its current rate for more than two years. MongoDB's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. 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 - MongoDB has 4 warning signs we think you should be aware of.

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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