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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that BioLife Solutions, Inc. (NASDAQ:BLFS) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
See our latest analysis for BioLife Solutions
The image below, which you can click on for greater detail, shows that BioLife Solutions had debt of US$7.55m at the end of June 2022, a reduction from US$11.3m over a year. But it also has US$46.5m in cash to offset that, meaning it has US$39.0m net cash.
We can see from the most recent balance sheet that BioLife Solutions had liabilities of US$33.3m falling due within a year, and liabilities of US$24.8m due beyond that. Offsetting these obligations, it had cash of US$46.5m as well as receivables valued at US$31.3m due within 12 months. So it can boast US$19.7m more liquid assets than total liabilities.
This short term liquidity is a sign that BioLife Solutions could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that BioLife Solutions has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if BioLife Solutions can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
In the last year BioLife Solutions wasn't profitable at an EBIT level, but managed to grow its revenue by 100%, to US$148m. With any luck the company will be able to grow its way to profitability.
We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months BioLife Solutions lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$27m and booked a US$94m accounting loss. Given it only has net cash of US$39.0m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, BioLife Solutions may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet – far from it. Case in point: We've spotted 3 warning signs for BioLife Solutions you should be aware of.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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BioLife Solutions, Inc. develops, manufactures, and supplies bioproduction tools and services for the cell and gene therapy industry in the United States, Canada, Europe, the Middle East, Africa, and internationally.
The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.
Read more about these checks in the individual report sections or in our analysis model.
High growth potential and fair value.
Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.
BioLife Solutions, Inc. develops, manufactures, and supplies bioproduction tools and services for the cell and gene therapy industry in the United States, Canada, Europe, the Middle East, Africa, and internationally.
The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.
Read more about these checks in the individual report sections or in our analysis model.
High growth potential and fair value.
Simply Wall Street Pty Ltd (ACN 600 056 611), is a Corporate Authorised Representative (Authorised Representative Number: 467183) of Sanlam Private Wealth Pty Ltd (AFSL No. 337927). Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situation or needs. You should not rely on any advice and/or information contained in this website and before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice. Please read our Financial Services Guide before deciding whether to obtain financial services from us.
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