The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies MongoDB, Inc. (NASDAQ:MDB) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does MongoDB Carry?

As you can see below, MongoDB had US$1.14b of debt, at January 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$2.02b in cash offsetting this, leading to net cash of US$872.1m.

How Strong Is MongoDB's Balance Sheet?

We can see from the most recent balance sheet that MongoDB had liabilities of US$564.2m falling due within a year, and liabilities of US$1.24b due beyond that. On the other hand, it had cash of US$2.02b and US$325.6m worth of receivables due within a year. So it can boast US$540.4m more liquid assets than total liabilities.

This surplus suggests that MongoDB has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that MongoDB 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 future earnings, more than anything, that will determine MongoDB'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.

In the last year MongoDB wasn't profitable at an EBIT level, but managed to grow its revenue by 31%, to US$1.7b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is MongoDB?

Although MongoDB had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$115m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We think its revenue growth of 31% is a good sign. We'd see further strong growth as an optimistic indication. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 2 warning signs for MongoDB you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.