The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies BioLife Solutions, Inc. (NASDAQ:BLFS) makes use of debt. But is this debt a concern to shareholders?
When Is Debt A Problem?
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 step when considering a company's debt levels is to consider its cash and debt together.
How Much Debt Does BioLife Solutions Carry?
You can click the graphic below for the historical numbers, but it shows that as of September 2021 BioLife Solutions had US$10.1m of debt, an increase on none, over one year. But on the other hand it also has US$75.1m in cash, leading to a US$65.0m net cash position.
How Strong Is BioLife Solutions' Balance Sheet?
Zooming in on the latest balance sheet data, we can see that BioLife Solutions had liabilities of US$35.8m due within 12 months and liabilities of US$34.3m due beyond that. Offsetting this, it had US$75.1m in cash and US$20.2m in receivables that were due within 12 months. So it actually has US$25.2m more liquid assets than total liabilities.
This state of affairs indicates that BioLife Solutions' 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$1.27b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, BioLife Solutions boasts net cash, so it's fair to say it does not have a heavy debt load! 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 BioLife Solutions 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.
In the last year BioLife Solutions wasn't profitable at an EBIT level, but managed to grow its revenue by 132%, to US$97m. So its pretty obvious shareholders are hoping for more growth!
So How Risky Is BioLife Solutions?
While BioLife Solutions lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of US$4.7m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We think its revenue growth of 132% is a good sign. We'd see further strong growth as an optimistic indication. 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 example - BioLife Solutions has 4 warning signs we think 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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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.