We Think NeoGenomics (NASDAQ:NEO) Has A Fair Chunk Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies NeoGenomics, Inc. (NASDAQ:NEO) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 NeoGenomics

What Is NeoGenomics's Net Debt?

As you can see below, NeoGenomics had US$534.7m of debt, at September 2022, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$443.5m in cash offsetting this, leading to net debt of about US$91.2m.

A Look At NeoGenomics' Liabilities

The latest balance sheet data shows that NeoGenomics had liabilities of US$85.0m due within a year, and liabilities of US$657.6m falling due after that. Offsetting these obligations, it had cash of US$443.5m as well as receivables valued at US$115.4m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$183.7m.

Of course, NeoGenomics has a market capitalization of US$1.26b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 NeoGenomics'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.

In the last year NeoGenomics wasn't profitable at an EBIT level, but managed to grow its revenue by 2.5%, to US$497m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months NeoGenomics produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping US$157m. 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. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$120m of cash over the last year. So in short it's a really risky stock. 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. To that end, you should be aware of the 3 warning signs we've spotted with NeoGenomics .

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.