David Iben put it well when he said: ‘Volatility is not a risk we care about. What matters to us is avoiding permanent loss of capital.’ So it seems that the smart money knows that debt, which is usually involved in bankruptcies, is a very important factor when evaluating how risky a company is. we can see that Pacific Biosciences of California, Inc. (NASDAQ:PACB) uses debt in its business. But should shareholders be concerned about their use of debt?
What risk does debt bring?
Generally speaking, debt only becomes a real problem when a company cannot easily pay it off, either by raising capital or from its own cash flow. An integral part of capitalism is the process of “creative destruction” in which bankers ruthlessly liquidate failing companies. However, a more frequent (but still expensive) occurrence is when a company must issue shares at bargain prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the advantage 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. When we think about a company’s use of debt, we first look at cash and debt together.
Check out our latest analysis from Pacific Biosciences of California
What is the net debt of Pacific Biosciences of California?
As you can see below, Pacific Biosciences of California had US$898.7 million in debt as of March 2023, which is about the same as the previous year. You can click on the graphic for more details. On the other hand, it has $874.9 million in cash, creating a net debt of about $23.8 million.
How strong is Pacific Biosciences of California’s balance sheet?
If we zoom in on the latest balance sheet data, we can see that Pacific Biosciences of California had liabilities of $265.7 million due in 12 months and liabilities of $938.6 million due later. On the other hand, it had cash of US$874.9 million and accounts receivable of US$29.6 million due within one year. Therefore, it has liabilities totaling $299.8 million more than its cash and short-term receivables combined.
Given that Pacific Biosciences of California has a market capitalization of $2.98 billion, it’s hard to believe that these liabilities pose much of a threat. Having said that, it is clear that we must continue to monitor its balance sheet, lest it turn for the worse. But either way, Pacific Biosciences of California has virtually no net debt, so it’s fair to say it doesn’t have a huge debt load. When looking at debt levels, the balance sheet is the obvious place to start. But ultimately, the future profitability of the business will decide whether Pacific Biosciences of California can strengthen its bottom line over time. So if you want to see what the pros think, you might find this free report on analyst earnings forecasts interesting.
Over 12 months, Pacific Biosciences of California observed that its revenue was fairly flat and reported no positive earnings before interest and taxes. While that’s not too bad, we would prefer to see growth.
warning emptor
During the past twelve months, Pacific Biosciences of California generated earnings before interest and tax losses (EBIT). Its EBIT loss was a whopping US$302 million. When we look at that and remember the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have debt. Frankly, we think the balance sheet is far from a match, although it could be improved over time. Another reason for caution is that US$296 million in negative free cash flow has been bled over in the last twelve months. In short, it is a really risky action. There is no doubt that we learn more about balance sheet debt. However, not all investment risk resides in the balance sheet, far from it. These risks can be difficult to detect. All companies have them, and we have seen 3 Warning Signs for Pacific Biosciences of California you should know about
If you are interested in investing in companies that can generate profit without the burden of debt, check this out free list of growing businesses that have net cash on the balance sheet.
Valuation is complex, but we are helping to simplify it.
Find out if Pacific Biosciences of California is potentially overvalued or undervalued by reviewing our comprehensive analysis, including fair value estimates, risks and warnings, dividends, internal transactions and financial health.
View the free analysis
Do you have comments on this article? Worried about the content? Get in touch with us directly. Alternatively, email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide feedback based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell any stock, and it does not take into account your goals or financial situation. Our goal is to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative material. Simply Wall St does not have a position in any of the mentioned stocks.
