Is Pacific Biosciences of California (NASDAQ:PACB) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Pacific Biosciences of California, Inc. (NASDAQ:PACB) makes use of debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

What Is Pacific Biosciences of California's Debt?

As you can see below, Pacific Biosciences of California had US$649.2m of debt at March 2025, down from US$892.7m a year prior. However, it also had US$343.1m in cash, and so its net debt is US$306.1m.

How Healthy Is Pacific Biosciences of California's Balance Sheet?

The latest balance sheet data shows that Pacific Biosciences of California had liabilities of US$66.6m due within a year, and liabilities of US$702.5m falling due after that. Offsetting these obligations, it had cash of US$343.1m as well as receivables valued at US$31.6m due within 12 months. So its liabilities total US$394.4m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of US$462.1m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. 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 Pacific Biosciences of California'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.

See our latest analysis for Pacific Biosciences of California

In the last year Pacific Biosciences of California had a loss before interest and tax, and actually shrunk its revenue by 24%, to US$152m. That makes us nervous, to say the least.

Caveat Emptor

Not only did Pacific Biosciences of California's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable US$642m at the EBIT level. 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. However, it doesn't help that it burned through US$183m 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. For example, we've discovered 2 warning signs for Pacific Biosciences of California that you should be aware of before investing here.

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.