Exact Sciences (NASDAQ:EXAS) Is Carrying A Fair Bit Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Exact Sciences Corporation (NASDAQ:EXAS) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Exact Sciences

How Much Debt Does Exact Sciences Carry?

As you can see below, at the end of June 2023, Exact Sciences had US$2.36b of debt, up from US$2.23b a year ago. Click the image for more detail. On the flip side, it has US$775.7m in cash leading to net debt of about US$1.59b.

How Strong Is Exact Sciences' Balance Sheet?

According to the last reported balance sheet, Exact Sciences had liabilities of US$488.1m due within 12 months, and liabilities of US$2.81b due beyond 12 months. Offsetting these obligations, it had cash of US$775.7m as well as receivables valued at US$182.1m due within 12 months. So it has liabilities totalling US$2.34b more than its cash and near-term receivables, combined.

Since publicly traded Exact Sciences shares are worth a very impressive total of US$12.0b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Exact Sciences 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, Exact Sciences reported revenue of US$2.3b, which is a gain of 19%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Exact Sciences produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$397m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$108m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Exact Sciences that you should be aware of before investing here.

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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