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.' 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. As with many other companies Myriad Genetics, Inc. (NASDAQ:MYGN) makes use of debt. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Myriad Genetics's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2023 Myriad Genetics had US$38.5m of debt, an increase on none, over one year. However, it does have US$140.9m in cash offsetting this, leading to net cash of US$102.4m.

How Healthy Is Myriad Genetics' Balance Sheet?

According to the last reported balance sheet, Myriad Genetics had liabilities of US$155.9m due within 12 months, and liabilities of US$207.4m due beyond 12 months. Offsetting these obligations, it had cash of US$140.9m as well as receivables valued at US$114.3m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$108.1m.

Given Myriad Genetics has a market capitalization of US$1.92b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Myriad Genetics also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Myriad Genetics 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.

In the last year Myriad Genetics wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to US$753m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Myriad Genetics?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Myriad Genetics had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$184m and booked a US$263m accounting loss. Given it only has net cash of US$102.4m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 Myriad Genetics you should be aware of.

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.