MannKind (NASDAQ:MNKD) Has Debt But No Earnings; Should You Worry?

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 can see that MannKind Corporation (NASDAQ:MNKD) does use debt in its business. But the real question is whether this debt is making the company risky.

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for MannKind

How Much Debt Does MannKind Carry?

As you can see below, MannKind had US$100.0m of debt at June 2019, down from US$129.4m a year prior. On the flip side, it has US$32.9m in cash leading to net debt of about US$67.1m.

How Healthy Is MannKind's Balance Sheet?

We can see from the most recent balance sheet that MannKind had liabilities of US$77.0m falling due within a year, and liabilities of US$200.8m due beyond that. Offsetting this, it had US$32.9m in cash and US$4.97m in receivables that were due within 12 months. So its liabilities total US$239.9m more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of US$227.5m, we think shareholders really should watch MannKind's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if MannKind can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, MannKind reported revenue of US$53m, which is a gain of 297%. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

Caveat Emptor

Even though MannKind managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Its EBIT loss was a whopping US$55m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of US$22m over the last twelve months. That means it's on the risky side of things. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting MannKind insider transactions.

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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