Is Monster Beverage (NASDAQ:MNST) A Risky Investment?

editorial-team@simplywallst.com (Simply Wall St)

Thu, May 8, 2025, 6:00 AM 4 min read

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Monster Beverage Corporation (NASDAQ:MNST) does have debt on its balance sheet. 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 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 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Monster Beverage's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Monster Beverage had debt of US$374.0m, up from none in one year. But it also has US$1.53b in cash to offset that, meaning it has US$1.16b net cash.

debt-equity-history-analysis — NasdaqGS:MNST Debt to Equity History May 8th 2025

How Healthy Is Monster Beverage's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Monster Beverage had liabilities of US$1.10b due within 12 months and liabilities of US$663.9m due beyond that. Offsetting this, it had US$1.53b in cash and US$1.22b in receivables that were due within 12 months. So it can boast US$987.6m more liquid assets than total liabilities.

This state of affairs indicates that Monster Beverage's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$58.5b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Monster Beverage boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Monster Beverage

The good news is that Monster Beverage has increased its EBIT by 3.3% over twelve months, which should ease any concerns about debt repayment. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Monster Beverage can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Monster Beverage may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Monster Beverage produced sturdy free cash flow equating to 67% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case Monster Beverage has US$1.16b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 67% of that EBIT to free cash flow, bringing in US$1.6b. So we don't think Monster Beverage's use of debt is risky. 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. For instance, we've identified 1 warning sign for Monster Beverage that you should be aware of.

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.