We Think Bio-Rad Laboratories (NYSE:BIO) 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. Importantly, Bio-Rad Laboratories, Inc. (NYSE:BIO) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Bio-Rad Laboratories Carry?

The chart below, which you can click on for greater detail, shows that Bio-Rad Laboratories had US$1.19b in debt in March 2025; about the same as the year before. But on the other hand it also has US$1.66b in cash, leading to a US$468.0m net cash position.

How Strong Is Bio-Rad Laboratories' Balance Sheet?

The latest balance sheet data shows that Bio-Rad Laboratories had liabilities of US$506.6m due within a year, and liabilities of US$2.34b falling due after that. Offsetting these obligations, it had cash of US$1.66b as well as receivables valued at US$438.4m due within 12 months. So its liabilities total US$748.7m more than the combination of its cash and short-term receivables.

Given Bio-Rad Laboratories has a market capitalization of US$7.00b, it's hard to believe these liabilities pose much 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!

See our latest analysis for Bio-Rad Laboratories

On the other hand, Bio-Rad Laboratories's EBIT dived 16%, over the last year. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. 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 Bio-Rad Laboratories'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 business needs free cash flow to pay off debt; accounting profits just don't cut it. Bio-Rad Laboratories 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. Over the most recent three years, Bio-Rad Laboratories recorded free cash flow worth 64% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

Although Bio-Rad Laboratories's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of US$468.0m. So we don't have any problem with Bio-Rad Laboratories's use of debt. While Bio-Rad Laboratories didn't make a statutory profit in the last year, its positive EBIT suggests that profitability might not be far away. Click here to see if its earnings are heading in the right direction, over the medium term.

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.