We Think Repligen (NASDAQ:RGEN) Can Stay On Top Of Its 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. We can see that Repligen Corporation (NASDAQ:RGEN) does use debt in its business. But the real question is whether this debt is making the company risky.

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. 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 Repligen

What Is Repligen's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Repligen had US$583.4m of debt, an increase on US$285.1m, over one year. However, it does have US$780.6m in cash offsetting this, leading to net cash of US$197.2m.

How Strong Is Repligen's Balance Sheet?

We can see from the most recent balance sheet that Repligen had liabilities of US$178.3m falling due within a year, and liabilities of US$700.4m due beyond that. On the other hand, it had cash of US$780.6m and US$115.8m worth of receivables due within a year. So it can boast US$17.7m 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$7.04b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Repligen has more cash than debt is arguably a good indication that it can manage its debt safely.

It is just as well that Repligen's load is not too heavy, because its EBIT was down 85% over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. 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 Repligen 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 Repligen 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. In the last three years, Repligen's free cash flow amounted to 49% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case Repligen has US$197.2m in net cash and a decent-looking balance sheet. So we don't have any problem with Repligen's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. 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 3 warning signs for Repligen you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com