We Think Pfizer (NSE:PFIZER) Can Stay On Top Of Its Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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 note that Pfizer Limited (NSE:PFIZER) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

Check out our latest analysis for Pfizer

What Is Pfizer's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Pfizer had ₹945.4m of debt in March 2024, down from ₹1.34b, one year before. But it also has ₹20.5b in cash to offset that, meaning it has ₹19.5b net cash.

How Strong Is Pfizer's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Pfizer had liabilities of ₹5.47b due within 12 months and liabilities of ₹866.8m due beyond that. Offsetting these obligations, it had cash of ₹20.5b as well as receivables valued at ₹2.39b due within 12 months. So it can boast ₹16.5b more liquid assets than total liabilities.

This surplus suggests that Pfizer has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Pfizer boasts net cash, so it's fair to say it does not have a heavy debt load!

Pfizer's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Pfizer 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Pfizer has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the most recent three years, Pfizer recorded free cash flow worth 52% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Pfizer has net cash of ₹19.5b, as well as more liquid assets than liabilities. So we don't think Pfizer's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Pfizer you should be aware of.

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.

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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.