Is Myriad Genetics (NASDAQ:MYGN) Using Debt Sensibly?

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 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. As with many other companies Myriad Genetics, Inc. (NASDAQ:MYGN) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Myriad Genetics

What Is Myriad Genetics's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 Myriad Genetics had US$38.4m of debt, an increase on none, over one year. However, it does have US$121.6m in cash offsetting this, leading to net cash of US$83.2m.

A Look At Myriad Genetics' Liabilities

Zooming in on the latest balance sheet data, we can see that Myriad Genetics had liabilities of US$221.1m due within 12 months and liabilities of US$230.9m due beyond that. Offsetting this, it had US$121.6m in cash and US$111.7m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$218.7m.

Given Myriad Genetics has a market capitalization of US$1.58b, 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. While it does have liabilities worth noting, Myriad Genetics 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 it is future earnings, more than anything, that will determine Myriad Genetics's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Myriad Genetics wasn't profitable at an EBIT level, but managed to grow its revenue by 4.0%, to US$699m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Myriad Genetics?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Myriad Genetics 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$119m and booked a US$248m accounting loss. Given it only has net cash of US$83.2m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. For riskier companies like Myriad Genetics I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.