Is Lantheus Holdings (NASDAQ:LNTH) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Lantheus Holdings, Inc. (NASDAQ:LNTH) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Lantheus Holdings

What Is Lantheus Holdings's Debt?

The image below, which you can click on for greater detail, shows that at September 2023 Lantheus Holdings had debt of US$560.2m, up from US$166.9m in one year. But it also has US$614.1m in cash to offset that, meaning it has US$54.0m net cash.

How Strong Is Lantheus Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Lantheus Holdings had liabilities of US$176.6m due within 12 months and liabilities of US$646.2m due beyond that. Offsetting these obligations, it had cash of US$614.1m as well as receivables valued at US$259.2m due within 12 months. 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 while it's hard to imagine that the US$4.45b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Lantheus Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

Fortunately, Lantheus Holdings grew its EBIT by 6.7% in the last year, making that debt load look even more manageable. When analysing debt levels, the balance sheet is the obvious place to start. 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Lantheus Holdings may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Looking at the most recent two years, Lantheus Holdings recorded free cash flow of 35% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case Lantheus Holdings has US$54.0m in net cash and a decent-looking balance sheet. On top of that, it increased its EBIT by 6.7% in the last twelve months. So is Lantheus Holdings's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with Lantheus Holdings (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

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.