Is Precigen (NASDAQ:PGEN) Using Debt In A Risky Way?

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. We can see that Precigen, Inc. (NASDAQ:PGEN) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

Check out our latest analysis for Precigen

How Much Debt Does Precigen Carry?

The image below, which you can click on for greater detail, shows that Precigen had debt of US$13.8m at the end of March 2023, a reduction from US$201.5m over a year. But it also has US$104.1m in cash to offset that, meaning it has US$90.3m net cash.

How Healthy Is Precigen's Balance Sheet?

We can see from the most recent balance sheet that Precigen had liabilities of US$46.7m falling due within a year, and liabilities of US$10.7m due beyond that. Offsetting this, it had US$104.1m in cash and US$15.5m in receivables that were due within 12 months. So it actually has US$62.2m more liquid assets than total liabilities.

It's good to see that Precigen has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that Precigen has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Precigen 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 Precigen wasn't profitable at an EBIT level, but managed to grow its revenue by 42%, to US$23m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Precigen?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Precigen 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$68m and booked a US$79m accounting loss. Given it only has net cash of US$90.3m, the company may need to raise more capital if it doesn't reach break-even soon. Precigen'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. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Precigen (of which 1 shouldn't be ignored!) you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.