Magnite (NASDAQ: MGNI) makes moderate use of debt
David Iben put it well when he said, âVolatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. We note that Magnite, Inc. (NASDAQ: MGNI) has debt on its balance sheet. But the most important question is: what risk does this debt create?
When is Debt a Problem?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that he has to raise new equity at low cost, thereby constantly diluting shareholders. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business 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 flow and debt together.
See our latest review for Magnite
What is Magnite’s debt?
You can click on the graph below for historical numbers, but it shows that as of September 2021, Magnite had $ 722.9 million in debt, an increase from none, year over year. On the other hand, it has $ 188.2 million in cash, resulting in net debt of around $ 534.8 million.
How strong is Magnite’s balance sheet?
The latest balance sheet data shows that Magnite had liabilities of US $ 858.9 million due within one year and liabilities of US $ 797.4 million due after that. In compensation for these obligations, he had cash of US $ 188.2 million as well as receivables valued at US $ 765.1 million due within 12 months. As a result, its liabilities exceed the sum of its cash and (short-term) receivables by $ 703.1 million.
Magnite has a market capitalization of US $ 2.23 billion, so it could most likely raise funds to improve its balance sheet, should the need arise. However, it is always worth taking a close look at your ability to repay your debt. There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the future profitability of the business will decide whether Magnite can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
Over 12 months, Magnite reported revenue of US $ 389 million, a gain of 107%, although it reported no profit before interest and taxes. So there is no doubt that shareholders encourage growth
Even though Magnite has managed to grow his turnover quite adroitly, the hard truth is that he is losing money on the EBIT line. To be precise, the EBIT loss amounted to US $ 38 million. Considering that besides the liabilities mentioned above, we are not convinced that the company should use so much debt. Quite frankly, we think the record is far from up to par, although it could improve over time. On the positive side, we note that EBIT for the past twelve months is worse than free cash flow of US $ 37 million and profit of US $ 5.5 million. So one could argue that there is still a chance that he could put things on the right track. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist off the balance sheet. Concrete example: we have spotted 5 warning signs for Magnite you need to be aware, and 2 of them are a bit rude.
If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash-flow-growing stocks.
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