Health Check: How Prudently Does Marinus Pharmaceuticals (NASDAQ:MRNS) Use Debt?

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Simply Wall St
·3 min read
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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. We note that Marinus Pharmaceuticals, Inc. (NASDAQ:MRNS) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Marinus Pharmaceuticals

What Is Marinus Pharmaceuticals's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2021 Marinus Pharmaceuticals had US$11.0m of debt, an increase on none, over one year. But on the other hand it also has US$112.5m in cash, leading to a US$101.5m net cash position.

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

A Look At Marinus Pharmaceuticals' Liabilities

The latest balance sheet data shows that Marinus Pharmaceuticals had liabilities of US$16.7m due within a year, and liabilities of US$13.2m falling due after that. Offsetting this, it had US$112.5m in cash and US$4.20m in receivables that were due within 12 months. So it can boast US$86.8m more liquid assets than total liabilities.

It's good to see that Marinus Pharmaceuticals has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Marinus Pharmaceuticals boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Marinus Pharmaceuticals can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Marinus Pharmaceuticals managed to produce its first revenue as a listed company, but given the lack of profit, shareholders will no doubt be hoping to see some strong increases.

So How Risky Is Marinus Pharmaceuticals?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Marinus Pharmaceuticals had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$71m and booked a US$84m accounting loss. However, it has net cash of US$101.5m, so it has a bit of time before it will need more capital. 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. Be aware that Marinus Pharmaceuticals is showing 3 warning signs in our investment analysis , you should know about...

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.

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.

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

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