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 note that MaxLinear, Inc. (NASDAQ:MXL) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is MaxLinear's Net Debt?

As you can see below, MaxLinear had US$122.8m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$148.5m in cash offsetting this, leading to net cash of US$25.6m.

How Strong Is MaxLinear's Balance Sheet?

We can see from the most recent balance sheet that MaxLinear had liabilities of US$168.6m falling due within a year, and liabilities of US$169.8m due beyond that. On the other hand, it had cash of US$148.5m and US$47.9m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$142.0m.

Given MaxLinear has a market capitalization of US$1.65b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, MaxLinear also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine MaxLinear'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.

Over 12 months, MaxLinear made a loss at the EBIT level, and saw its revenue drop to US$394m, which is a fall of 54%. To be frank that doesn't bode well.

So How Risky Is MaxLinear?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year MaxLinear had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$56m and booked a US$226m accounting loss. But the saving grace is the US$25.6m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with MaxLinear .

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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