Lantheus Holdings (NASDAQ:LNTH) Could Easily Take On More Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 note that Lantheus Holdings, Inc. (NASDAQ:LNTH) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Lantheus Holdings

What Is Lantheus Holdings's Debt?

As you can see below, Lantheus Holdings had US$561.9m of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$718.3m in cash offsetting this, leading to net cash of US$156.3m.

How Healthy Is Lantheus Holdings' Balance Sheet?

We can see from the most recent balance sheet that Lantheus Holdings had liabilities of US$237.2m falling due within a year, and liabilities of US$648.6m due beyond that. Offsetting these obligations, it had cash of US$718.3m as well as receivables valued at US$337.4m due within 12 months. So it actually has US$169.9m more liquid assets than total liabilities.

This surplus suggests that Lantheus Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Lantheus Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

Better yet, Lantheus Holdings grew its EBIT by 384% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Lantheus Holdings's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

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. Over the most recent two years, Lantheus Holdings recorded free cash flow worth 56% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Lantheus Holdings has US$156.3m in net cash and a decent-looking balance sheet. And we liked the look of last year's 384% year-on-year EBIT growth. 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. Be aware that Lantheus Holdings is showing 1 warning sign in our investment analysis , you should know about...

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.

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