Biome Australia (ASX:BIO) Is Making Moderate Use Of Debt

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Biome Australia Limited (ASX:BIO) does use debt in its business. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, 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 Biome Australia's Debt?

As you can see below, at the end of June 2025, Biome Australia had AU$2.91m of debt, up from AU$1.02m a year ago. Click the image for more detail. However, because it has a cash reserve of AU$2.75m, its net debt is less, at about AU$159.0k.

A Look At Biome Australia's Liabilities

According to the last reported balance sheet, Biome Australia had liabilities of AU$7.18m due within 12 months, and liabilities of AU$112.5k due beyond 12 months. Offsetting these obligations, it had cash of AU$2.75m as well as receivables valued at AU$4.33m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by AU$218.6k.

Having regard to Biome Australia's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the AU$102.6m company is struggling for cash, we still think it's worth monitoring its balance sheet. Carrying virtually no net debt, Biome Australia has a very light debt load indeed. 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 Biome Australia 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.

Check out our latest analysis for Biome Australia

Over 12 months, Biome Australia reported revenue of AU$18m, which is a gain of 42%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

While we can certainly appreciate Biome Australia's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. To be specific the EBIT loss came in at AU$361. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much 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 AU$3.0m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be 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 example, we've discovered 2 warning signs for Biome Australia (1 is a bit concerning!) that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.