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

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 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 Exact Sciences Corporation (NASDAQ:EXAS) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Exact Sciences

What Is Exact Sciences's Debt?

As you can see below, at the end of December 2024, Exact Sciences had US$2.57b of debt, up from US$2.36b a year ago. Click the image for more detail. However, it does have US$1.04b in cash offsetting this, leading to net debt of about US$1.53b.

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How Healthy Is Exact Sciences' Balance Sheet?

We can see from the most recent balance sheet that Exact Sciences had liabilities of US$732.2m falling due within a year, and liabilities of US$2.79b due beyond that. On the other hand, it had cash of US$1.04b and US$249.0m worth of receivables due within a year. So it has liabilities totalling US$2.24b more than its cash and near-term receivables, combined.

This deficit isn't so bad because Exact Sciences is worth US$8.39b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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$2.8b, which is a gain of 10%, 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.

Caveat Emptor

Importantly, Exact Sciences had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$185m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of US$1.0b. So to be blunt we do think it is risky. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Exact Sciences insider transactions.

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.