Does Mercurity Fintech Holding (NASDAQ:MFH) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that ‘Volatility is far from synonymous with risk.’ 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. As with many other companies Mercurity Fintech Holding Inc. (NASDAQ:MFH) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can’t easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. The first step when considering a company’s debt levels is to consider its cash and debt together.

View our latest analysis for Mercurity Fintech Holding

What Is Mercurity Fintech Holding’s Debt?

As you can see below, at the end of December 2023, Mercurity Fintech Holding had US$9.92m of debt, up from US$911.2k a year ago. Click the image for more detail. But on the other hand it also has US$18.4m in cash, leading to a US$8.52m net cash position.

A Look At Mercurity Fintech Holding’s Liabilities

According to the last reported balance sheet, Mercurity Fintech Holding had liabilities of US$12.3m due within 12 months, and liabilities of US$282.3k due beyond 12 months. On the other hand, it had cash of US$18.4m and US$5.21m worth of receivables due within a year. So it can boast US$11.1m more liquid assets than total liabilities.

This short term liquidity is a sign that Mercurity Fintech Holding could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Mercurity Fintech Holding boasts net cash, so it’s fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Mercurity Fintech Holding’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.

Given it has no significant operating revenue at the moment, shareholders will be hoping Mercurity Fintech Holding can make progress and gain better traction for the business, before it runs low on cash.

So How Risky Is Mercurity Fintech Holding?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Mercurity Fintech Holding had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$5.8m of cash and made a loss of US$9.4m. While this does make the company a bit risky, it’s important to remember it has net cash of US$8.52m. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. 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. To that end, you should learn about the 4 warning signs we’ve spotted with Mercurity Fintech Holding (including 2 which are concerning) .

If you’re interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.