Health Check: How Carefully Does Mirada (LON:MIRA) Use Debt?
Warren Buffett said: “Volatility is far from synonymous with risk. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. Like many other companies Mirada S.A. (LON:MIRA) uses debt. But does this debt worry shareholders?
When is debt a problem?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it exists at their mercy. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. 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 has is to look at its cash and debt together.
See our latest review for Mirada
What is Mirada’s debt?
The image below, which you can click on for more details, shows that as of September 2021, Mirada had $8.25 million in debt, up from $7.64 million in one year. However, since he has a cash reserve of $538,000, his net debt is less, at around $7.71 million.
How healthy is Mirada’s balance sheet?
Zooming in on the latest balance sheet data, we can see that Mirada had liabilities of US$5.48 million due within 12 months and liabilities of US$6.31 million due beyond. In compensation for these obligations, it had cash of 538.0k USD as well as receivables valued at 4.43 million USD and payable within 12 months. It therefore has liabilities totaling $6.82 million more than its cash and short-term receivables, combined.
This deficit is sizable relative to its market capitalization of US$7.00 million, so it suggests shareholders should monitor Mirada’s use of debt. If its lenders asked it to shore up its balance sheet, shareholders would likely face significant dilution. The balance sheet is clearly the area to focus on when analyzing debt. But it is future earnings, more than anything, that will determine Mirada’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.
Year-over-year, Mirada posted a loss in EBIT and saw its revenue fall to US$12 million, a decline of 8.2%. We would much rather see growth.
Over the last twelve months, Mirada has recorded a loss of earnings before interest and taxes (EBIT). Indeed, it lost a very considerable US$2.4 million in EBIT. Considering that alongside the liabilities mentioned above, this doesn’t give us much confidence that the company should use so much debt. So we think its balance sheet is a little stretched, but not beyond repair. We’d feel better if he turned his year-over-year loss of US$2.7 million into a profit. In short, it’s a really risky title. 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 outside of the balance sheet. For example, we found 1 warning sign for Mirada which you should be aware of before investing here.
In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeat present.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.