Health Check: How Prudently Does BioLife Solutions (NASDAQ:BLFS) Use Debt?

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 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. Importantly, BioLife Solutions, Inc. (NASDAQ:BLFS) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for BioLife Solutions

What Is BioLife Solutions's Debt?

The image below, which you can click on for greater detail, shows that at September 2022 BioLife Solutions had debt of US$26.3m, up from US$10.1m in one year. However, its balance sheet shows it holds US$61.6m in cash, so it actually has US$35.3m net cash.

How Healthy Is BioLife Solutions' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that BioLife Solutions had liabilities of US$36.9m due within 12 months and liabilities of US$42.5m due beyond that. On the other hand, it had cash of US$61.6m and US$32.4m worth of receivables due within a year. So it can boast US$14.6m more liquid assets than total liabilities.

Having regard to BioLife Solutions' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$865.2m company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, BioLife Solutions boasts net cash, so it's fair to say it does not have a heavy debt load! 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 BioLife Solutions 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.

In the last year BioLife Solutions wasn't profitable at an EBIT level, but managed to grow its revenue by 60%, to US$155m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is BioLife Solutions?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that BioLife Solutions had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$28m of cash and made a loss of US$104m. Given it only has net cash of US$35.3m, the company may need to raise more capital if it doesn't reach break-even soon. BioLife Solutions's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example BioLife Solutions has 3 warning signs (and 1 which is a bit unpleasant) we think 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.