Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Myriad Genetics, Inc. (NASDAQ:MYGN) makes use of debt. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
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. 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.
See our latest analysis for Myriad Genetics
What Is Myriad Genetics's Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2023 Myriad Genetics had US$38.5m of debt, an increase on none, over one year. But on the other hand it also has US$86.3m in cash, leading to a US$47.8m net cash position.
How Healthy Is Myriad Genetics' Balance Sheet?
We can see from the most recent balance sheet that Myriad Genetics had liabilities of US$209.3m falling due within a year, and liabilities of US$256.4m due beyond that. Offsetting this, it had US$86.3m in cash and US$115.2m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$264.2m.
Since publicly traded Myriad Genetics shares are worth a total of US$1.59b, it seems unlikely that this level of liabilities would be a major 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. 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 Myriad Genetics'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.
Over 12 months, Myriad Genetics reported revenue of US$734m, which is a gain of 11%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
So How Risky Is Myriad Genetics?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Myriad Genetics lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$138m of cash and made a loss of US$274m. Given it only has net cash of US$47.8m, 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Myriad Genetics has 1 warning sign we think you should be aware of.
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.