BioLife Solutions (NASDAQ:BLFS) Has Debt But No Earnings; Should You Worry?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that BioLife Solutions, Inc. (NASDAQ:BLFS) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for BioLife Solutions

What Is BioLife Solutions's Debt?

The image below, which you can click on for greater detail, shows that BioLife Solutions had debt of US$7.55m at the end of June 2022, a reduction from US$11.3m over a year. But it also has US$46.5m in cash to offset that, meaning it has US$39.0m net cash.

How Strong Is BioLife Solutions' Balance Sheet?

We can see from the most recent balance sheet that BioLife Solutions had liabilities of US$33.3m falling due within a year, and liabilities of US$24.8m due beyond that. Offsetting these obligations, it had cash of US$46.5m as well as receivables valued at US$31.3m due within 12 months. So it can boast US$19.7m more liquid assets than total liabilities.

This short term liquidity is a sign that BioLife Solutions could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that BioLife Solutions has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if BioLife Solutions 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.

In the last year BioLife Solutions wasn't profitable at an EBIT level, but managed to grow its revenue by 100%, to US$148m. With any luck the company will be able to grow its way to profitability.

So How Risky Is BioLife Solutions?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months BioLife Solutions lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$27m and booked a US$94m accounting loss. Given it only has net cash of US$39.0m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, BioLife Solutions may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for BioLife Solutions 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.