Health Check: How Prudently Does Personalis (NASDAQ:PSNL) Use Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, Personalis, Inc. (NASDAQ:PSNL) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. 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. 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 Personalis

How Much Debt Does Personalis Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 Personalis had US$3.55m of debt, an increase on none, over one year. But on the other hand it also has US$266.5m in cash, leading to a US$263.0m net cash position.

A Look At Personalis' Liabilities

We can see from the most recent balance sheet that Personalis had liabilities of US$39.8m falling due within a year, and liabilities of US$54.1m due beyond that. Offsetting these obligations, it had cash of US$266.5m as well as receivables valued at US$13.5m due within 12 months. So it actually has US$186.1m more liquid assets than total liabilities.

This surplus liquidity suggests that Personalis' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Personalis boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Personalis'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.

Over 12 months, Personalis saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

So How Risky Is Personalis?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Personalis had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$90m of cash and made a loss of US$81m. While this does make the company a bit risky, it's important to remember it has net cash of US$263.0m. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Personalis has 4 warning signs we think you should be aware of.

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.