Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 note that Maravai LifeSciences Holdings, Inc. (NASDAQ:MRVI) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Maravai LifeSciences Holdings's Debt?

As you can see below, Maravai LifeSciences Holdings had US$522.5m of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$579.7m in cash, so it actually has US$57.2m net cash.

A Look At Maravai LifeSciences Holdings' Liabilities

According to the last reported balance sheet, Maravai LifeSciences Holdings had liabilities of US$68.6m due within 12 months, and liabilities of US$602.6m due beyond 12 months. Offsetting this, it had US$579.7m in cash and US$39.3m in receivables that were due within 12 months. So its liabilities total US$52.2m more than the combination of its cash and short-term receivables.

Of course, Maravai LifeSciences Holdings has a market capitalization of US$2.01b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Maravai LifeSciences Holdings 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 Maravai LifeSciences Holdings'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.

In the last year Maravai LifeSciences Holdings had a loss before interest and tax, and actually shrunk its revenue by 49%, to US$279m. That makes us nervous, to say the least.

So How Risky Is Maravai LifeSciences Holdings?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Maravai LifeSciences Holdings lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$17m and booked a US$132m accounting loss. Given it only has net cash of US$57.2m, 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Maravai LifeSciences Holdings you should know about.

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.