Is Regeneron Pharmaceuticals (NASDAQ:REGN) Using Too Much Debt?

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

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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Regeneron Pharmaceuticals

What Is Regeneron Pharmaceuticals's Debt?

The chart below, which you can click on for greater detail, shows that Regeneron Pharmaceuticals had US$1.98b in debt in September 2024; about the same as the year before. But on the other hand it also has US$9.80b in cash, leading to a US$7.81b net cash position.

A Look At Regeneron Pharmaceuticals' Liabilities

Zooming in on the latest balance sheet data, we can see that Regeneron Pharmaceuticals had liabilities of US$3.66b due within 12 months and liabilities of US$4.46b due beyond that. Offsetting these obligations, it had cash of US$9.80b as well as receivables valued at US$6.11b due within 12 months. So it can boast US$7.79b more liquid assets than total liabilities.

This short term liquidity is a sign that Regeneron Pharmaceuticals could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Regeneron Pharmaceuticals has more cash than debt is arguably a good indication that it can manage its debt safely.

On the other hand, Regeneron Pharmaceuticals saw its EBIT drop by 6.3% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. 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 Regeneron Pharmaceuticals 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Regeneron Pharmaceuticals has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Regeneron Pharmaceuticals produced sturdy free cash flow equating to 79% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Regeneron Pharmaceuticals has net cash of US$7.81b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$3.3b, being 79% of its EBIT. So we don't think Regeneron Pharmaceuticals's use of debt is risky. We'd be very excited to see if Regeneron Pharmaceuticals insiders have been snapping up shares. If you are too, then click on this link right now to take a (free) peek at our list of reported insider transactions.

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.