Yahoo Finance These 4 Measures Indicate That Meridian Bioscience (NASDAQ:VIVO) Is Using Debt Safely
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Meridian Bioscience, Inc. (NASDAQ:VIVO) does carry debt. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for Meridian Bioscience
How Much Debt Does Meridian Bioscience Carry?
The image below, which you can click on for greater detail, shows that Meridian Bioscience had debt of US$50.2m at the end of June 2021, a reduction from US$99.5m over a year. But it also has US$70.0m in cash to offset that, meaning it has US$19.8m net cash.
How Healthy Is Meridian Bioscience's Balance Sheet?
According to the last reported balance sheet, Meridian Bioscience had liabilities of US$36.7m due within 12 months, and liabilities of US$87.7m due beyond 12 months. On the other hand, it had cash of US$70.0m and US$42.3m worth of receivables due within a year. So it has liabilities totalling US$12.1m more than its cash and near-term receivables, combined.
This state of affairs indicates that Meridian Bioscience's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$834.1m company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Meridian Bioscience boasts net cash, so it's fair to say it does not have a heavy debt load!
In addition to that, we're happy to report that Meridian Bioscience has boosted its EBIT by 64%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Meridian Bioscience'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.
Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Meridian Bioscience may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Meridian Bioscience recorded free cash flow worth 63% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.
Summing up
While it is always sensible to look at a company's total liabilities, it is very reassuring that Meridian Bioscience has US$19.8m in net cash. And it impressed us with its EBIT growth of 64% over the last year. So is Meridian Bioscience's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Meridian Bioscience .
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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.
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