Does Macquarie Technology Group (ASX:MAQ) Have A Healthy Balance Sheet?

Simply Wall St · 04/14 20:14

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 note that Macquarie Technology Group Limited (ASX:MAQ) does have debt on its balance sheet. But is this debt a concern to shareholders?

We've discovered 2 warning signs about Macquarie Technology Group. View them for free.

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Macquarie Technology Group Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Macquarie Technology Group had AU$92.6m of debt, an increase on none, over one year. On the flip side, it has AU$91.1m in cash leading to net debt of about AU$1.49m.

debt-equity-history-analysis
ASX:MAQ Debt to Equity History April 14th 2025

How Healthy Is Macquarie Technology Group's Balance Sheet?

The latest balance sheet data shows that Macquarie Technology Group had liabilities of AU$94.1m due within a year, and liabilities of AU$143.4m falling due after that. Offsetting this, it had AU$91.1m in cash and AU$51.2m in receivables that were due within 12 months. So its liabilities total AU$95.2m more than the combination of its cash and short-term receivables.

Since publicly traded Macquarie Technology Group shares are worth a total of AU$1.54b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Carrying virtually no net debt, Macquarie Technology Group has a very light debt load indeed.

See our latest analysis for Macquarie Technology Group

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

With debt at a measly 0.016 times EBITDA and EBIT covering interest a whopping 13.2 times, it's clear that Macquarie Technology Group is not a desperate borrower. Indeed relative to its earnings its debt load seems light as a feather. On top of that, Macquarie Technology Group grew its EBIT by 30% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Macquarie Technology Group's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So it's worth checking how much of that EBIT is backed by free cash flow. Over the last three years, Macquarie Technology Group reported free cash flow worth 12% of its EBIT, which is really quite low. That limp level of cash conversion undermines its ability to manage and pay down debt.

Our View

The good news is that Macquarie Technology Group's demonstrated ability to cover its interest expense with its EBIT delights us like a fluffy puppy does a toddler. But we must concede we find its conversion of EBIT to free cash flow has the opposite effect. Looking at the bigger picture, we think Macquarie Technology Group's use of debt seems quite reasonable and we're not concerned about it. After all, sensible leverage can boost returns on equity. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Macquarie Technology Group is showing 2 warning signs in our investment analysis , you should know about...

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