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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Myriad Genetics, Inc. (NASDAQ:MYGN) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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, 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. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Myriad Genetics Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Myriad Genetics had US$38.7m of debt, an increase on none, over one year. But on the other hand it also has US$104.3m in cash, leading to a US$65.6m net cash position.

How Healthy Is Myriad Genetics' Balance Sheet?

According to the last reported balance sheet, Myriad Genetics had liabilities of US$146.1m due within 12 months, and liabilities of US$204.4m due beyond 12 months. Offsetting these obligations, it had cash of US$104.3m as well as receivables valued at US$118.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$128.1m.

Of course, Myriad Genetics has a market capitalization of US$2.41b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Myriad Genetics boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. 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 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$774m. 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?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Myriad Genetics had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$155m of cash and made a loss of US$235m. Given it only has net cash of US$65.6m, 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for Myriad Genetics that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com