We Think ADMA Biologics (NASDAQ:ADMA) Has A Fair Chunk Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that ADMA Biologics, Inc. (NASDAQ:ADMA) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for ADMA Biologics

What Is ADMA Biologics's Debt?

The chart below, which you can click on for greater detail, shows that ADMA Biologics had US$140.3m in debt in June 2023; about the same as the year before. On the flip side, it has US$62.5m in cash leading to net debt of about US$77.8m.

How Strong Is ADMA Biologics' Balance Sheet?

According to the last reported balance sheet, ADMA Biologics had liabilities of US$42.0m due within 12 months, and liabilities of US$154.3m due beyond 12 months. Offsetting these obligations, it had cash of US$62.5m as well as receivables valued at US$36.7m due within 12 months. So it has liabilities totalling US$97.0m more than its cash and near-term receivables, combined.

Given ADMA Biologics has a market capitalization of US$692.7m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 ADMA Biologics 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.

In the last year ADMA Biologics wasn't profitable at an EBIT level, but managed to grow its revenue by 89%, to US$208m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though ADMA Biologics managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost US$14m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$51m of cash over the last year. So in short it's a really risky stock. 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. Case in point: We've spotted 2 warning signs for ADMA Biologics you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.