Standard BioTools (NASDAQ:LAB) Has Debt But No Earnings; Should You Worry?

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.' 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 is this debt a concern to shareholders?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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. 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.

View our latest analysis for Standard BioTools

What Is Standard BioTools's Net Debt?

As you can see below, Standard BioTools had US$55.1m of debt at June 2024, down from US$65.2m a year prior. However, it does have US$394.7m in cash offsetting this, leading to net cash of US$339.6m.

How Healthy Is Standard BioTools' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Standard BioTools had liabilities of US$123.8m due within 12 months and liabilities of US$74.7m due beyond that. On the other hand, it had cash of US$394.7m and US$32.4m worth of receivables due within a year. So it actually has US$228.7m more liquid assets than total liabilities.

This surplus strongly suggests that Standard BioTools has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, 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're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Standard BioTools wasn't profitable at an EBIT level, but managed to grow its revenue by 29%, to US$136m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Standard BioTools?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Standard BioTools had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$131m and booked a US$165m accounting loss. But the saving grace is the US$339.6m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Standard BioTools's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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 is potentially serious) we think you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.