Is BioLife Solutions (NASDAQ:BLFS) Using Debt Sensibly?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that BioLife Solutions, Inc. (NASDAQ:BLFS) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. 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.

Check out 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 BioLife Solutions had debt of US$21.1m at the end of June 2024, a reduction from US$25.5m over a year. But on the other hand it also has US$34.1m in cash, leading to a US$13.1m net cash position.

How Strong Is BioLife Solutions' Balance Sheet?

According to the last reported balance sheet, BioLife Solutions had liabilities of US$30.8m due within 12 months, and liabilities of US$22.7m due beyond 12 months. Offsetting this, it had US$34.1m in cash and US$18.1m in receivables that were due within 12 months. So it has liabilities totalling US$1.34m more than its cash and near-term receivables, combined.

This state of affairs indicates that BioLife Solutions' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$1.01b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, BioLife Solutions 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 it is future earnings, more than anything, that will determine BioLife Solutions's ability to maintain a healthy balance sheet going forward. 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 had a loss before interest and tax, and actually shrunk its revenue by 2.4%, to US$140m. That's not what we would hope to see.

So How Risky Is BioLife Solutions?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that BioLife Solutions had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$7.8m and booked a US$64m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$13.1m. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. We've identified 1 warning sign with BioLife Solutions , and understanding them should be part of your investment process.

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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