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David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, Monster Beverage Corporation (NASDAQ:MNST) does carry debt. 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. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.
See our latest analysis for Monster Beverage
What Is Monster Beverage's Net Debt?
The image below, which you can click on for greater detail, shows that at September 2024 Monster Beverage had debt of US$748.8m, up from none in one year. However, it does have US$1.63b in cash offsetting this, leading to net cash of US$876.5m.
How Strong Is Monster Beverage's Balance Sheet?
The latest balance sheet data shows that Monster Beverage had liabilities of US$1.25b due within a year, and liabilities of US$1.03b falling due after that. Offsetting these obligations, it had cash of US$1.63b as well as receivables valued at US$1.28b due within 12 months. So it actually has US$630.6m more liquid assets than total liabilities.
This state of affairs indicates that Monster Beverage's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$53.6b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Monster Beverage has more cash than debt is arguably a good indication that it can manage its debt safely.
Fortunately, Monster Beverage grew its EBIT by 5.1% in the last year, making that debt load look even more manageable. 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 Monster Beverage can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.