Is Personalis (NASDAQ:PSNL) A Risky Investment?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Personalis, Inc. (NASDAQ:PSNL) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Personalis's Net Debt?

As you can see below, at the end of June 2025, Personalis had US$2.69m of debt, up from US$2.28m a year ago. Click the image for more detail. However, it does have US$173.2m in cash offsetting this, leading to net cash of US$170.5m.

A Look At Personalis' Liabilities

Zooming in on the latest balance sheet data, we can see that Personalis had liabilities of US$31.7m due within 12 months and liabilities of US$36.1m due beyond that. Offsetting these obligations, it had cash of US$173.2m as well as receivables valued at US$9.95m due within 12 months. So it actually has US$115.3m more liquid assets than total liabilities.

It's good to see that Personalis has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Personalis has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Personalis can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Check out our latest analysis for Personalis

In the last year Personalis's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

So How Risky Is Personalis?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Personalis 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$49m and booked a US$91m accounting loss. But the saving grace is the US$170.5m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. We've identified 3 warning signs with Personalis (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

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.