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

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.' 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 BioLife Solutions, Inc. (NASDAQ:BLFS) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for BioLife Solutions

What Is BioLife Solutions's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2022 BioLife Solutions had debt of US$25.6m, up from US$7.22m in one year. But it also has US$62.7m in cash to offset that, meaning it has US$37.1m net cash.

How Healthy Is BioLife Solutions' Balance Sheet?

According to the last reported balance sheet, BioLife Solutions had liabilities of US$44.6m due within 12 months, and liabilities of US$41.5m due beyond 12 months. On the other hand, it had cash of US$62.7m and US$33.9m worth of receivables due within a year. So it actually has US$10.6m 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 it's very unlikely that the US$835.7m company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that BioLife Solutions has more cash than debt is arguably a good indication that 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 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.

Over 12 months, BioLife Solutions reported revenue of US$162m, which is a gain of 36%, although it did not report any earnings before interest and tax. 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$22m of cash and made a loss of US$140m. Given it only has net cash of US$37.1m, 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. 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. To that end, you should be aware of the 1 warning sign we've spotted with BioLife Solutions .

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.