Is Twist Bioscience (NASDAQ:TWST) Using Too Much Debt?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Twist Bioscience Corporation (NASDAQ:TWST) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Twist Bioscience

How Much Debt Does Twist Bioscience Carry?

The image below, which you can click on for greater detail, shows that Twist Bioscience had debt of US$2.37m at the end of June 2021, a reduction from US$5.50m over a year. But on the other hand it also has US$519.4m in cash, leading to a US$517.0m net cash position.

How Healthy Is Twist Bioscience's Balance Sheet?

The latest balance sheet data shows that Twist Bioscience had liabilities of US$54.8m due within a year, and liabilities of US$60.0m falling due after that. On the other hand, it had cash of US$519.4m and US$28.1m worth of receivables due within a year. So it actually has US$432.7m more liquid assets than total liabilities.

This short term liquidity is a sign that Twist Bioscience could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Twist Bioscience boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Twist Bioscience's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Twist Bioscience wasn't profitable at an EBIT level, but managed to grow its revenue by 73%, to US$127m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Twist Bioscience?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Twist Bioscience lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$124m and booked a US$135m accounting loss. But at least it has US$517.0m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, Twist Bioscience may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. To that end, you should learn about the 4 warning signs we've spotted with Twist Bioscience (including 1 which is significant) .

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.
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