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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 can see that Marvell Technology, Inc. (NASDAQ:MRVL) does use debt in its business. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for Marvell Technology
What Is Marvell Technology's Net Debt?
The chart below, which you can click on for greater detail, shows that Marvell Technology had US$4.09b in debt in November 2024; about the same as the year before. On the flip side, it has US$868.1m in cash leading to net debt of about US$3.23b.
How Healthy Is Marvell Technology's Balance Sheet?
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. Offsetting this, it had US$868.1m in cash and US$997.9m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$4.48b.
Given Marvell Technology has a humongous market capitalization of US$76.4b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. 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 Marvell Technology's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Marvell Technology made a loss at the EBIT level, and saw its revenue drop to US$5.4b, which is a fall of 2.2%. That's not what we would hope to see.