January 27, 2025
The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Marvell Technology, Inc. ( NASDAQ:MRVL ) does carry debt. But is this debt a concern to shareholders?
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, 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.
View our latest analysis for Marvell Technology
As you can see below, Marvell Technology had US$4.09b of debt, at November 2024, which is about the same as the year before. You can click the chart for greater detail. However, it also had US$868.1m in cash, and so its net debt is US$3.23b.
The latest balance sheet data shows that Marvell Technology had liabilities of US$1.76b due within a year, and liabilities of US$4.58b falling due after that. On the other hand, it had cash of US$868.1m and US$997.9m worth of receivables due within a year. So it has liabilities totalling US$4.48b more than its cash and near-term receivables, combined.
Of course, Marvell Technology has a titanic market capitalization of US$107.3b, so these liabilities are probably manageable. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year Marvell Technology had a loss before interest and tax, and actually shrunk its revenue by 2.2%, to US$5.4b. We would much prefer see growth.
Over the last twelve months Marvell Technology produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$240m 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. For example, we would not want to see a repeat of last year's loss of US$1.5b. 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 instance, we've identified 1 warning sign for Marvell Technology that you should be aware of.
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free , right now.
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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.
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