Is Standard BioTools (NASDAQ:LAB) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 can see that Standard BioTools Inc. (NASDAQ:LAB) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Standard BioTools

What Is Standard BioTools's Debt?

As you can see below, Standard BioTools had US$65.2m of debt, at June 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$142.3m in cash, so it actually has US$77.1m net cash.

A Look At Standard BioTools' Liabilities

Zooming in on the latest balance sheet data, we can see that Standard BioTools had liabilities of US$46.8m due within 12 months and liabilities of US$111.1m due beyond that. Offsetting this, it had US$142.3m in cash and US$15.1m in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

Having regard to Standard BioTools' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$227.4m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Standard BioTools also has more cash than debt, so we're pretty confident it can manage its debt safely. 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.

In the last year Standard BioTools had a loss before interest and tax, and actually shrunk its revenue by 5.9%, to US$105m. We would much prefer see growth.

So How Risky Is Standard BioTools?

We have no doubt that loss making companies are, in general, riskier than profitable ones. 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$65m of cash and made a loss of US$84m. But at least it has US$77.1m on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Standard BioTools that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.