We Think Lantheus Holdings (NASDAQ:LNTH) Can Manage Its Debt With Ease

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Lantheus Holdings, Inc. (NASDAQ:LNTH) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

Check out our latest analysis for Lantheus Holdings

What Is Lantheus Holdings's Net Debt?

The chart below, which you can click on for greater detail, shows that Lantheus Holdings had US$562.8m in debt in June 2024; about the same as the year before. But on the other hand it also has US$757.0m in cash, leading to a US$194.2m net cash position.

How Strong Is Lantheus Holdings' Balance Sheet?

The latest balance sheet data shows that Lantheus Holdings had liabilities of US$263.3m due within a year, and liabilities of US$649.9m falling due after that. Offsetting these obligations, it had cash of US$757.0m as well as receivables valued at US$372.3m due within 12 months. So it can boast US$216.2m 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. Succinctly put, Lantheus Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

Better yet, Lantheus Holdings grew its EBIT by 173% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. 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. During the last three years, Lantheus Holdings produced sturdy free cash flow equating to 51% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Lantheus Holdings has net cash of US$194.2m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 173% over the last year. So is Lantheus Holdings's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Lantheus Holdings is showing 2 warning signs in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.