Lifecore Biomedical (NASDAQ:LFCR) Is Making Moderate Use 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 note that Lifecore Biomedical, Inc. (NASDAQ:LFCR) does have debt on its balance sheet. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Lifecore Biomedical's Net Debt?

As you can see below, Lifecore Biomedical had US$118.9m of debt, at February 2025, which is about the same as the year before. You can click the chart for greater detail. However, because it has a cash reserve of US$5.42m, its net debt is less, at about US$113.5m.

How Healthy Is Lifecore Biomedical's Balance Sheet?

According to the last reported balance sheet, Lifecore Biomedical had liabilities of US$31.1m due within 12 months, and liabilities of US$159.2m due beyond 12 months. On the other hand, it had cash of US$5.42m and US$41.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$143.2m.

Lifecore Biomedical has a market capitalization of US$284.4m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Lifecore Biomedical's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

View our latest analysis for Lifecore Biomedical

In the last year Lifecore Biomedical wasn't profitable at an EBIT level, but managed to grow its revenue by 7.4%, to US$130m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Lifecore Biomedical produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$12m. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$11m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Lifecore Biomedical you should know about.

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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