Health Check: How Prudently Does Standard BioTools (NASDAQ:LAB) Use Debt?

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 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 Standard BioTools Inc. (NASDAQ:LAB) 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Standard BioTools

What Is Standard BioTools's Debt?

As you can see below, Standard BioTools had US$64.6m of debt, at September 2023, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$128.9m in cash, so it actually has US$64.3m net cash.

How Healthy Is Standard BioTools' Balance Sheet?

The latest balance sheet data shows that Standard BioTools had liabilities of US$51.8m due within a year, and liabilities of US$108.0m falling due after that. Offsetting this, it had US$128.9m in cash and US$16.6m in receivables that were due within 12 months. So it has liabilities totalling US$14.3m more than its cash and near-term receivables, combined.

Given Standard BioTools has a market capitalization of US$555.8m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Standard BioTools boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Standard BioTools can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Standard BioTools made a loss at the EBIT level, and saw its revenue drop to US$105m, which is a fall of 3.7%. We would much prefer see growth.

So How Risky Is Standard BioTools?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Standard BioTools had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$52m of cash and made a loss of US$76m. However, it has net cash of US$64.3m, so it has a bit of time before it will need more capital. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example Standard BioTools has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.