BioMarin Pharmaceutical (NASDAQ:BMRN) Seems To Use Debt Rather Sparingly

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 note that BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for BioMarin Pharmaceutical

How Much Debt Does BioMarin Pharmaceutical Carry?

As you can see below, BioMarin Pharmaceutical had US$1.09b of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has US$1.22b in cash to offset that, meaning it has US$135.4m net cash.

How Strong Is BioMarin Pharmaceutical's Balance Sheet?

We can see from the most recent balance sheet that BioMarin Pharmaceutical had liabilities of US$1.07b falling due within a year, and liabilities of US$713.5m due beyond that. On the other hand, it had cash of US$1.22b and US$691.2m worth of receivables due within a year. So it can boast US$134.8m more liquid assets than total liabilities.

This state of affairs indicates that BioMarin Pharmaceutical's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$13.5b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, BioMarin Pharmaceutical boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, BioMarin Pharmaceutical grew its EBIT by 94% over the last twelve months, and that growth will make it easier to handle its debt. 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 BioMarin Pharmaceutical 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. BioMarin Pharmaceutical may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last two years, BioMarin Pharmaceutical produced sturdy free cash flow equating to 70% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case BioMarin Pharmaceutical has US$135.4m in net cash and a decent-looking balance sheet. And we liked the look of last year's 94% year-on-year EBIT growth. So is BioMarin Pharmaceutical's debt a risk? It doesn't seem so to us. Another factor that would give us confidence in BioMarin Pharmaceutical would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.

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.