David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. We can see that Fluidigm Corporation (NASDAQ:FLDM) does use debt in its business. But the real question is whether this debt is making the company risky.
Why Does Debt Bring Risk?
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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.
How Much Debt Does Fluidigm Carry?
As you can see below, Fluidigm had US$49.9m of debt at September 2019, down from US$169.3m a year prior. But it also has US$62.8m in cash to offset that, meaning it has US$12.9m net cash.
How Healthy Is Fluidigm's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Fluidigm had liabilities of US$33.4m due within 12 months and liabilities of US$73.4m due beyond that. Offsetting these obligations, it had cash of US$62.8m as well as receivables valued at US$14.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$30.0m.
Since publicly traded Fluidigm shares are worth a total of US$220.2m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Fluidigm 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 it is future earnings, more than anything, that will determine Fluidigm's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Fluidigm reported revenue of US$117m, which is a gain of 8.1%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
So How Risky Is Fluidigm?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Fluidigm had negative earnings before interest and tax (EBIT), truth be told. Indeed, in that time it burnt through US$32m of cash and made a loss of US$67m. But at least it has US$12.9m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Fluidigm insider transactions.
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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