Is Castle Biosciences (NASDAQ:CSTL) Using Too Much 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.' 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. As with many other companies Castle Biosciences, Inc. (NASDAQ:CSTL) makes use of debt. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

What Is Castle Biosciences's Net Debt?

The chart below, which you can click on for greater detail, shows that Castle Biosciences had US$10.0m in debt in March 2025; about the same as the year before. But it also has US$275.2m in cash to offset that, meaning it has US$265.1m net cash.

How Healthy Is Castle Biosciences' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Castle Biosciences had liabilities of US$37.3m due within 12 months and liabilities of US$24.1m due beyond that. On the other hand, it had cash of US$275.2m and US$57.0m worth of receivables due within a year. So it actually has US$270.7m more liquid assets than total liabilities.

This surplus strongly suggests that Castle Biosciences has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Castle Biosciences boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Castle Biosciences 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 Castle Biosciences

In the last year Castle Biosciences wasn't profitable at an EBIT level, but managed to grow its revenue by 38%, to US$347m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Castle Biosciences?

Although Castle Biosciences had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$42m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Keeping in mind its 38% revenue growth over the last year, we think there's a decent chance the company is on track. There's no doubt fast top line growth can cure all manner of ills, for a stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Castle Biosciences (1 is a bit concerning!) that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.