Is Standard BioTools (NASDAQ:LAB) Using Debt Sensibly?

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.' 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. As with many other companies Standard BioTools Inc. (NASDAQ:LAB) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Standard BioTools

What Is Standard BioTools's Debt?

The image below, which you can click on for greater detail, shows that Standard BioTools had debt of US$55.2m at the end of September 2024, a reduction from US$64.6m over a year. However, its balance sheet shows it holds US$366.3m in cash, so it actually has US$311.1m 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$120.6m due within 12 months and liabilities of US$71.6m due beyond that. Offsetting these obligations, it had cash of US$366.3m as well as receivables valued at US$35.3m due within 12 months. So it can boast US$209.4m more liquid assets than total liabilities.

This surplus liquidity suggests that Standard BioTools' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Standard BioTools boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. 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 wasn't profitable at an EBIT level, but managed to grow its revenue by 48%, to US$156m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Standard BioTools?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Standard BioTools lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$149m of cash and made a loss of US$171m. But at least it has US$311.1m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, Standard BioTools may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Standard BioTools you should be aware of.

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.