Here's Why Lantheus Holdings (NASDAQ:LNTH) Can Manage Its Debt Responsibly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Lantheus Holdings, Inc. (NASDAQ:LNTH) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

View our latest analysis for Lantheus Holdings

What Is Lantheus Holdings's Debt?

As you can see below, at the end of September 2023, Lantheus Holdings had US$560.2m of debt, up from US$166.9m a year ago. Click the image for more detail. But on the other hand it also has US$614.1m in cash, leading to a US$54.0m net cash position.

How Healthy Is Lantheus Holdings' Balance Sheet?

We can see from the most recent balance sheet that Lantheus Holdings had liabilities of US$176.6m falling due within a year, and liabilities of US$646.2m due beyond that. On the other hand, it had cash of US$614.1m and US$259.2m worth of receivables due within a year. So it can boast US$50.5m more liquid assets than total liabilities.

This state of affairs indicates that Lantheus Holdings' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$3.77b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Lantheus Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

Fortunately, Lantheus Holdings grew its EBIT by 6.7% in the last year, making that debt load look even more manageable. 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 Lantheus Holdings 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Lantheus Holdings 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. In the last two years, Lantheus Holdings's free cash flow amounted to 35% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Lantheus Holdings has net cash of US$54.0m, as well as more liquid assets than liabilities. On top of that, it increased its EBIT by 6.7% in the last twelve months. So we don't think Lantheus Holdings's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Lantheus Holdings (1 is significant) you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.