Is Emergent BioSolutions (NYSE:EBS) Using Debt In A Risky Way?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Emergent BioSolutions Inc. (NYSE:EBS) does use debt in its business. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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 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, 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.

What Is Emergent BioSolutions's Net Debt?

As you can see below, Emergent BioSolutions had US$665.7m of debt at March 2025, down from US$905.9m a year prior. However, it does have US$149.1m in cash offsetting this, leading to net debt of about US$516.6m.

A Look At Emergent BioSolutions' Liabilities

Zooming in on the latest balance sheet data, we can see that Emergent BioSolutions had liabilities of US$111.9m due within 12 months and liabilities of US$761.5m due beyond that. Offsetting these obligations, it had cash of US$149.1m as well as receivables valued at US$203.7m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$520.6m.

Given this deficit is actually higher than the company's market capitalization of US$379.4m, we think shareholders really should watch Emergent BioSolutions's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Emergent BioSolutions 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.

View our latest analysis for Emergent BioSolutions

In the last year Emergent BioSolutions had a loss before interest and tax, and actually shrunk its revenue by 19%, to US$965m. We would much prefer see growth.

Caveat Emptor

While Emergent BioSolutions's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping US$42m. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. For example, we would not want to see a repeat of last year's loss of US$132m. And until that time we think this is a risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Emergent BioSolutions you should be aware of.

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.