Is Malibu Boats (NASDAQ:MBUU) A Risky Investment?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Malibu Boats, Inc. (NASDAQ:MBUU) does use debt in its business. But is this debt a concern to shareholders?

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

What Risk Does Debt Bring?

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, 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.

What Is Malibu Boats's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Malibu Boats had US$28.0m of debt, an increase on US$15.0m, over one year. However, its balance sheet shows it holds US$38.7m in cash, so it actually has US$10.7m net cash.

How Strong Is Malibu Boats' Balance Sheet?

According to the last reported balance sheet, Malibu Boats had liabilities of US$148.4m due within 12 months, and liabilities of US$92.5m due beyond 12 months. Offsetting these obligations, it had cash of US$38.7m as well as receivables valued at US$42.4m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$159.7m.

This deficit isn't so bad because Malibu Boats is worth US$614.2m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, Malibu Boats boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Malibu Boats

Importantly, Malibu Boats's EBIT fell a jaw-dropping 95% in the last twelve months. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. 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 Malibu Boats'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Malibu Boats has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, Malibu Boats's free cash flow amounted to 40% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While Malibu Boats does have more liabilities than liquid assets, it also has net cash of US$10.7m. So although we see some areas for improvement, we're not too worried about Malibu Boats's balance sheet. Even though Malibu Boats lost money on the bottom line, its positive EBIT suggests the business itself has potential. So you might want to check out how earnings have been trending over the last few years.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.