Does Fulgent Genetics (NASDAQ:FLGT) Have A Healthy Balance Sheet?

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.' 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 Fulgent Genetics, Inc. (NASDAQ:FLGT) 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Fulgent Genetics

How Much Debt Does Fulgent Genetics Carry?

The image below, which you can click on for greater detail, shows that Fulgent Genetics had debt of US$2.91m at the end of September 2024, a reduction from US$5.89m over a year. But on the other hand it also has US$213.1m in cash, leading to a US$210.2m net cash position.

How Strong Is Fulgent Genetics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Fulgent Genetics had liabilities of US$74.0m due within 12 months and liabilities of US$24.9m due beyond that. Offsetting these obligations, it had cash of US$213.1m as well as receivables valued at US$64.9m due within 12 months. So it can boast US$179.1m more liquid assets than total liabilities.

This surplus strongly suggests that Fulgent Genetics 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. Simply put, the fact that Fulgent Genetics 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 Fulgent Genetics can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Fulgent Genetics made a loss at the EBIT level, and saw its revenue drop to US$278m, which is a fall of 3.0%. We would much prefer see growth.

So How Risky Is Fulgent Genetics?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Fulgent Genetics had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$29m of cash and made a loss of US$165m. While this does make the company a bit risky, it's important to remember it has net cash of US$210.2m. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. Be aware that Fulgent Genetics is showing 2 warning signs in our investment analysis , you should know about...

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.