Marvell Technology (NASDAQ:MRVL) has a significant amount of debt.

Legendary fund manager Li Lu (backed by Charlie Munger) once said, “The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.” It's only natural to consider a company's balance sheet when you consider how risky it is, since debt is often involved when a business collapses.Like many other companies Marvell Technology Co., Ltd. (NASDAQ:MRVL) uses debt. But the real question is whether this debt is putting the company at risk.

Why does debt pose a risk?

Generally, debt only becomes a real problem if a company cannot easily pay it off, either by raising capital or with its own cash flow. Ultimately, if a company fails to meet its legal obligations to repay debt, shareholders could walk away with nothing. But a more common (but still expensive) situation is when a company needs to dilute shareholders at a cheap share price just to manage its debt. Of course, debt can be an important tool in business, especially in capital-heavy businesses. When we think about a company's use of debt, we first think of cash and debt together.

Check out our latest analysis for Marvell Technologies.

How much debt does Marvell Technology have?

You can click on the image below for more information, but Marvell Technology had debt of US$4.17b at the end of February 2024, down from US$4.49b over one year. However, it did have US$950.8m in cash offsetting this, leading to its net debt of approximately US$3.22b.

How strong is Marvell Technology's balance sheet?

Zooming in on the latest balance sheet data, Marvell Technology had liabilities of US$1.81b falling due within 12 months, and liabilities of US$4.58b falling due beyond that. I understand this. Offsetting this, it had cash of US$950.8m and receivables of US$1.12b due within 12 months. So its liabilities outweigh the sum of its cash and (short-term) receivables by US$4.32b.

Given Marvell Technology's market capitalization of US$61.4b, it's hard to imagine these debts pose much of a threat. However, we think it's worth keeping an eye on its balance sheet strength, as that can change over time. There's no question that we learn most about debt from the balance sheet. But more than anything else, future earnings will determine Marvell Technology's ability to maintain a healthy balance sheet going forward.If you're focused on the future, check this out free A report showing analyst profit forecasts.

Over the twelve month period, Marvell Technology made a loss at the EBIT level, and its revenue fell by 6.8% to US$5.5b. That's not what we want.

Buyer's responsibility burden

Over the last twelve months, Marvell Technology made a loss in earnings before interest and tax (EBIT). In fact, at the EBIT level, it suffered a loss of USD 437 million. Combined with the debt listed above, we're not convinced that the company has this much debt. As a result, we believe that the balance sheet is slightly strained, although not beyond repair. For example, we don't want to see a repeat of last year's US$933 million loss. Therefore, we consider this stock to be quite risky. When it comes to risky companies like Marvell Technologies, we always like to monitor whether insiders are buying or selling. If you want to find out for yourself, click here.

Of course, if you're the type of investor who prefers buying stocks without taking on debt, then don't hesitate and discover our exclusive list of net cash growth stocks today.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and the articles are not intended as financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.