Fintech

Does Mercurity Fintech Holding (NASDAQ:MFH) have a healthy balance sheet?

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Some argue that volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett has said that “volatility is far from synonymous with risk.” It’s natural to consider a company’s balance sheet when examining how risky it is, since debt is often involved when a company collapses. As with many other companies Mercurity Fintech Holding Inc. (NASDAQ:MFH) resorts to debt. But does this debt worry shareholders?

What risk does debt entail?

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, lenders can take control of the business. While this isn’t too common, we often see indebted companies permanently dilute shareholders because lenders force them to raise capital at a difficult price. That said, the most common situation is where a company manages its debt reasonably well – and to its 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 $9.92 million in debt, up from $911.2 thousand a year ago. Click on the image for more details. But on the other hand it also has US$18.4m in cash, leading to a net cash position of US$8.52m.

NasdaqCM: MFH Debt vs. Equity History, June 12, 2024

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. It can therefore boast $11.1m more in cash than its total liabilities.

This short-term liquidity is a sign that Mercurity Fintech Holding could likely pay off its debt with ease, as its balance sheet is far from stretched. Simply put, Mercurity Fintech Holding boasts net cash, so it’s fair to say it doesn’t have a heavy debt load! When analyzing debt levels, the balance sheet is the most obvious starting point. But it will be the profits of Mercurity Fintech Holding that will influence the future stability of the balance sheet. So if you’d like to know more about its earnings, it might be worth taking a look this graph of its long-term earnings trend.

Given that it currently has no significant operating revenue, shareholders are hoping that Mercurity Fintech Holding can make progress and gain better traction for the company, before it runs out of cash.

So how risky is Mercurity Fintech participation?

We have no doubt that loss-making companies are, in general, riskier than profitable ones. And we note that Mercurity Fintech Holding made earnings before interest and tax (EBIT) loss over the last year. In fact, it burned through $5.8m of cash in that period and posted a loss of $9.4m. While this makes the company a bit risky, it’s important to remember that it has net cash of US$8.52m. This means the company can continue to spend on growth for at least two years, at current rates. Overall, its balance sheet doesn’t look overly risky at the moment, but we still remain cautious until we see positive free cash flow. There is no doubt that we learn most of the information about debt from the balance sheet. But ultimately, every business can contain risks that exist outside of the balance sheet. To this end, you should know the 4 warning signs we have identified Mercurity Fintech Holding (of which 2 are worrying) .

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

Valuation is complex, but we help you make it simple.

Find out whether Mercurity Fintech Holding is potentially overvalued or undervalued by checking out our full analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View free analysis

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

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