Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Malibu Boats, Inc. (NASDAQ:MBUU) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 think about a company's use of debt, we first look at cash and debt together.

What Is Malibu Boats's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Malibu Boats had US$23.0m of debt in September 2025, down from US$28.0m, one year before. However, it does have US$44.1m in cash offsetting this, leading to net cash of US$21.1m.

A Look At Malibu Boats' Liabilities

According to the last reported balance sheet, Malibu Boats had liabilities of US$152.0m due within 12 months, and liabilities of US$83.0m due beyond 12 months. Offsetting these obligations, it had cash of US$44.1m as well as receivables valued at US$45.4m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$145.5m.

This deficit isn't so bad because Malibu Boats is worth US$663.9m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, Malibu Boats boasts net cash, so it's fair to say it does not have a heavy debt load!

Even more impressive was the fact that Malibu Boats grew its EBIT by 131% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. 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 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. 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. Looking at the most recent three years, Malibu Boats recorded free cash flow of 44% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

Although Malibu Boats's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of US$21.1m. And we liked the look of last year's 131% year-on-year EBIT growth. So is Malibu Boats's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Malibu Boats's earnings per share history for free.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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.