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 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. We can see that Mobvista Inc. (HKG:1860) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. 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 Mobvista

What Is Mobvista's Debt?

As you can see below, at the end of June 2019, Mobvista had US$30.9m of debt, up from US$17.9m a year ago. Click the image for more detail. But on the other hand it also has US$69.3m in cash, leading to a US$38.4m net cash position.

How Strong Is Mobvista's Balance Sheet?

According to the last reported balance sheet, Mobvista had liabilities of US$166.6m due within 12 months, and liabilities of US$8.53m due beyond 12 months. Offsetting this, it had US$69.3m in cash and US$244.4m in receivables that were due within 12 months. So it can boast US$138.6m more liquid assets than total liabilities.

This excess liquidity suggests that Mobvista is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Mobvista boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Mobvista has boosted its EBIT by 69%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Mobvista can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.