Does Bio-Rad Laboratories (NYSE:BIO) Have A Healthy Balance Sheet?

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 note that Bio-Rad Laboratories, Inc. (NYSE:BIO) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Bio-Rad Laboratories

What Is Bio-Rad Laboratories's Net Debt?

The chart below, which you can click on for greater detail, shows that Bio-Rad Laboratories had US$1.19b in debt in December 2024; about the same as the year before. However, its balance sheet shows it holds US$1.66b in cash, so it actually has US$472.5m net cash.

How Healthy Is Bio-Rad Laboratories' Balance Sheet?

According to the last reported balance sheet, Bio-Rad Laboratories had liabilities of US$467.8m due within 12 months, and liabilities of US$2.33b due beyond 12 months. On the other hand, it had cash of US$1.66b and US$465.6m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$664.7m.

Since publicly traded Bio-Rad Laboratories shares are worth a total of US$8.10b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Bio-Rad Laboratories 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 Bio-Rad Laboratories if management cannot prevent a repeat of the 20% cut to EBIT over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Bio-Rad Laboratories'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Bio-Rad Laboratories 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, Bio-Rad Laboratories produced sturdy free cash flow equating to 52% 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

We could understand if investors are concerned about Bio-Rad Laboratories's liabilities, but we can be reassured by the fact it has has net cash of US$472.5m. So we are not troubled with Bio-Rad Laboratories's debt use. Even though Bio-Rad Laboratories lost money on the bottom line, its positive EBIT suggests the business itself has potential. So you might want to check out how earnings have been trending over the last few years.

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.