We Think BioMarin Pharmaceutical (NASDAQ:BMRN) Can Stay On Top Of Its Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) does carry debt. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for BioMarin Pharmaceutical

How Much Debt Does BioMarin Pharmaceutical Carry?

As you can see below, BioMarin Pharmaceutical had US$1.08b of debt, at March 2023, which is about the same as the year before. You can click the chart for greater detail. But it also has US$1.15b in cash to offset that, meaning it has US$68.1m net cash.

How Strong Is BioMarin Pharmaceutical's Balance Sheet?

According to the last reported balance sheet, BioMarin Pharmaceutical had liabilities of US$598.2m due within 12 months, and liabilities of US$1.18b due beyond 12 months. Offsetting this, it had US$1.15b in cash and US$597.9m in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

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 it's very unlikely that the US$16.1b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, BioMarin Pharmaceutical also has more cash than debt, so we're pretty confident it can manage its debt safely.

It was also good to see that despite losing money on the EBIT line last year, BioMarin Pharmaceutical turned things around in the last 12 months, delivering and EBIT of US$76m. When analysing debt levels, the balance sheet is the obvious place to start. 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, a company can only pay off debt with cold hard cash, not accounting profits. 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. Looking at the most recent year, BioMarin Pharmaceutical recorded free cash flow of 29% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

We could understand if investors are concerned about BioMarin Pharmaceutical's liabilities, but we can be reassured by the fact it has has net cash of US$68.1m. So we are not troubled with BioMarin Pharmaceutical's debt use. Of course, we wouldn't say no to the extra confidence that we'd gain if we knew that BioMarin Pharmaceutical insiders have been buying shares: if you're on the same wavelength, you can find out if insiders are buying by clicking this link.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.