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We Think Marvell Technology (NASDAQ:MRVL) Has A Fair Chunk Of Debt

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Marvell Technology, Inc. (NASDAQ:MRVL) makes use of debt. But the real question is whether this debt is making the company risky.

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. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Marvell Technology

How Much Debt Does Marvell Technology Carry?

You can click the graphic below for the historical numbers, but it shows that Marvell Technology had US$4.17b of debt in February 2024, down from US$4.49b, one year before. However, because it has a cash reserve of US$950.8m, its net debt is less, at about US$3.22b.

debt-equity-history-analysis
debt-equity-history-analysis

A Look At Marvell Technology's Liabilities

According to the last reported balance sheet, Marvell Technology had liabilities of US$1.81b due within 12 months, and liabilities of US$4.58b due beyond 12 months. Offsetting these obligations, it had cash of US$950.8m as well as receivables valued at US$1.12b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$4.32b.

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Of course, Marvell Technology has a titanic market capitalization of US$56.5b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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$5.5b, which is a fall of 6.8%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Marvell Technology produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$437m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of US$933m. So we do think this stock is quite risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Marvell Technology you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.