Does Adaptive Biotechnologies (NASDAQ:ADPT) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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, Adaptive Biotechnologies Corporation (NASDAQ:ADPT) does carry debt. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Adaptive Biotechnologies

What Is Adaptive Biotechnologies's Debt?

The chart below, which you can click on for greater detail, shows that Adaptive Biotechnologies had US$132.1m in debt in June 2024; about the same as the year before. But on the other hand it also has US$291.9m in cash, leading to a US$159.8m net cash position.

How Healthy Is Adaptive Biotechnologies' Balance Sheet?

We can see from the most recent balance sheet that Adaptive Biotechnologies had liabilities of US$88.1m falling due within a year, and liabilities of US$255.3m due beyond that. Offsetting this, it had US$291.9m in cash and US$36.8m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$14.8m.

Given Adaptive Biotechnologies has a market capitalization of US$713.8m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Adaptive Biotechnologies also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Adaptive Biotechnologies 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 Adaptive Biotechnologies had a loss before interest and tax, and actually shrunk its revenue by 11%, to US$169m. We would much prefer see growth.

So How Risky Is Adaptive Biotechnologies?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Adaptive Biotechnologies had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$137m and booked a US$213m accounting loss. But at least it has US$159.8m on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Adaptive Biotechnologies has 2 warning signs we think you should be aware of.

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.