Is Mobvoi (HKG:2438) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Mobvoi Inc. (HKG:2438) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Mobvoi's Debt?

As you can see below, at the end of December 2024, Mobvoi had CN¥20.0m of debt, up from none a year ago. Click the image for more detail. However, its balance sheet shows it holds CN¥347.6m in cash, so it actually has CN¥327.6m net cash.

How Strong Is Mobvoi's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Mobvoi had liabilities of CN¥200.0m due within 12 months and liabilities of CN¥21.0m due beyond that. Offsetting these obligations, it had cash of CN¥347.6m as well as receivables valued at CN¥68.3m due within 12 months. So it can boast CN¥195.0m more liquid assets than total liabilities.

This surplus liquidity suggests that Mobvoi's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Mobvoi has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Mobvoi's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

View our latest analysis for Mobvoi

In the last year Mobvoi had a loss before interest and tax, and actually shrunk its revenue by 23%, to CN¥390m. That makes us nervous, to say the least.

So How Risky Is Mobvoi?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Mobvoi had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CN¥177m of cash and made a loss of CN¥721m. But at least it has CN¥327.6m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Mobvoi has 3 warning signs (and 1 which is concerning) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.