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Does Organogenesis Holdings (NASDAQ:ORGO) Have A Healthy Balance Sheet?

Simply Wall St

Warren Buffett famously said, '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. Importantly, Organogenesis Holdings Inc. (NASDAQ:ORGO) does carry debt. But should shareholders be worried about its use of debt?

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. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Organogenesis Holdings

How Much Debt Does Organogenesis Holdings Carry?

The image below, which you can click on for greater detail, shows that Organogenesis Holdings had debt of US$73.1m at the end of June 2019, a reduction from US$124.0m over a year. On the flip side, it has US$20.0m in cash leading to net debt of about US$53.1m.

NasdaqCM:ORGO Historical Debt, November 11th 2019
NasdaqCM:ORGO Historical Debt, November 11th 2019

How Healthy Is Organogenesis Holdings's Balance Sheet?

We can see from the most recent balance sheet that Organogenesis Holdings had liabilities of US$50.4m falling due within a year, and liabilities of US$94.5m due beyond that. Offsetting this, it had US$20.0m in cash and US$34.2m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$90.7m.

Given Organogenesis Holdings has a market capitalization of US$682.1m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Organogenesis Holdings 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 Organogenesis Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by29%, to US$236m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, Organogenesis Holdings still had negative earnings before interest and tax (EBIT), over the last year. Indeed, it lost US$31m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$65m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. For riskier companies like Organogenesis Holdings I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.