Does ANI Pharmaceuticals (NASDAQ:ANIP) 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.' 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 ANI Pharmaceuticals, Inc. (NASDAQ:ANIP) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.

See our latest analysis for ANI Pharmaceuticals

What Is ANI Pharmaceuticals's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2022 ANI Pharmaceuticals had debt of US$286.7m, up from US$209.9m in one year. However, it does have US$56.3m in cash offsetting this, leading to net debt of about US$230.5m.

How Healthy Is ANI Pharmaceuticals' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ANI Pharmaceuticals had liabilities of US$81.6m due within 12 months and liabilities of US$320.8m due beyond that. On the other hand, it had cash of US$56.3m and US$140.4m worth of receivables due within a year. So it has liabilities totalling US$205.7m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since ANI Pharmaceuticals has a market capitalization of US$655.7m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine ANI Pharmaceuticals's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year ANI Pharmaceuticals wasn't profitable at an EBIT level, but managed to grow its revenue by 33%, to US$283m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, ANI Pharmaceuticals still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$36m 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. Another cause for caution is that is bled US$53m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. For riskier companies like ANI Pharmaceuticals I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

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.