Is BioLife Solutions (NASDAQ:BLFS) Weighed On By Its Debt Load?

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

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

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 June 2023 BioLife Solutions had debt of US$25.5m, up from US$7.55m in one year. However, it does have US$46.3m in cash offsetting this, leading to net cash of US$20.8m.

A Look At BioLife Solutions' Liabilities

We can see from the most recent balance sheet that BioLife Solutions had liabilities of US$39.6m falling due within a year, and liabilities of US$41.5m due beyond that. Offsetting these obligations, it had cash of US$46.3m as well as receivables valued at US$26.9m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$7.93m.

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$540.1m company is struggling for cash, we still think it's worth monitoring its 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 ultimately the future profitability of the business will decide if BioLife Solutions 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.

Over 12 months, BioLife Solutions reported revenue of US$162m, which is a gain of 9.7%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is BioLife Solutions?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months BioLife Solutions lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$17m of cash and made a loss of US$83m. Given it only has net cash of US$20.8m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 2 warning signs we've spotted with BioLife Solutions .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.