Is Repligen (NASDAQ:RGEN) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Repligen Corporation (NASDAQ:RGEN) makes use of debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Repligen

What Is Repligen's Debt?

As you can see below, Repligen had US$285.5m of debt, at June 2023, which is about the same as the year before. You can click the chart for greater detail. But it also has US$603.7m in cash to offset that, meaning it has US$318.1m net cash.

A Look At Repligen's Liabilities

The latest balance sheet data shows that Repligen had liabilities of US$373.6m due within a year, and liabilities of US$204.5m falling due after that. Offsetting these obligations, it had cash of US$603.7m as well as receivables valued at US$120.3m due within 12 months. So it actually has US$145.9m more liquid assets than total liabilities.

Having regard to Repligen's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$8.54b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Repligen boasts net cash, so it's fair to say it does not have a heavy debt load!

The modesty of its debt load may become crucial for Repligen if management cannot prevent a repeat of the 36% cut to EBIT over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. 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 Repligen'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Repligen may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Repligen's free cash flow amounted to 27% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Repligen has net cash of US$318.1m, as well as more liquid assets than liabilities. So we don't have any problem with Repligen's use of debt. We'd be motivated to research the stock further if we found out that Repligen insiders have bought shares recently. If you would too, then you're in luck, since today we're sharing our list of reported insider transactions for free.

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.