Does BioMarin Pharmaceutical (NASDAQ:BMRN) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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

What Is BioMarin Pharmaceutical's Net Debt?

You can click the graphic below for the historical numbers, but it shows that BioMarin Pharmaceutical had US$594.6m of debt in September 2024, down from US$1.09b, one year before. But on the other hand it also has US$930.4m in cash, leading to a US$335.8m net cash position.

A Look At BioMarin Pharmaceutical's Liabilities

The latest balance sheet data shows that BioMarin Pharmaceutical had liabilities of US$715.7m due within a year, and liabilities of US$722.1m falling due after that. Offsetting this, it had US$930.4m in cash and US$777.5m in receivables that were due within 12 months. So it actually has US$270.2m more liquid assets than total liabilities.

This short term liquidity is a sign that BioMarin Pharmaceutical could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that BioMarin Pharmaceutical has more cash than debt is arguably a good indication that it can manage its debt safely.

Better yet, BioMarin Pharmaceutical grew its EBIT by 107% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine BioMarin Pharmaceutical'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.

Finally, while the tax-man may adore accounting profits, lenders only accept 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. Over the last three years, BioMarin Pharmaceutical recorded free cash flow worth a fulsome 99% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case BioMarin Pharmaceutical has US$335.8m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 99% of that EBIT to free cash flow, bringing in US$311m. 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.

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.