We Think Murano Global Investments (NASDAQ:MRNO) Has A Fair Chunk Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Murano Global Investments Plc (NASDAQ:MRNO) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Murano Global Investments Carry?

As you can see below, at the end of September 2024, Murano Global Investments had Mex$10.0b of debt, up from Mex$6.90b a year ago. Click the image for more detail. However, it does have Mex$680.1m in cash offsetting this, leading to net debt of about Mex$9.36b.

A Look At Murano Global Investments' Liabilities

We can see from the most recent balance sheet that Murano Global Investments had liabilities of Mex$1.94b falling due within a year, and liabilities of Mex$13.0b due beyond that. On the other hand, it had cash of Mex$680.1m and Mex$438.9m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by Mex$13.8b.

Of course, Murano Global Investments has a market capitalization of Mex$191.9b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. But it is Murano Global Investments'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.

Over 12 months, Murano Global Investments reported revenue of Mex$547m, which is a gain of 174%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

Caveat Emptor

Despite the top line growth, Murano Global Investments still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost Mex$541m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled Mex$1.2b in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. 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. For instance, we've identified 1 warning sign for Murano Global Investments that you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.