Yahoo Finance Here's Why Azenta (NASDAQ:AZTA) Can Manage Its Debt Responsibly
Warren Buffett famously said, '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 Azenta, Inc. (NASDAQ:AZTA) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.
Check out our latest analysis for Azenta
How Much Debt Does Azenta Carry?
The chart below, which you can click on for greater detail, shows that Azenta had US$49.7m in debt in December 2021; about the same as the year before. However, it does have US$215.2m in cash offsetting this, leading to net cash of US$165.5m.
How Healthy Is Azenta's Balance Sheet?
The latest balance sheet data shows that Azenta had liabilities of US$341.8m due within a year, and liabilities of US$145.7m falling due after that. On the other hand, it had cash of US$215.2m and US$144.8m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$127.5m.
Since publicly traded Azenta shares are worth a total of US$6.24b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Azenta also has more cash than debt, so we're pretty confident it can manage its debt safely.
Notably, Azenta made a loss at the EBIT level, last year, but improved that to positive EBIT of US$3.5m in the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Azenta can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Azenta has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, Azenta actually produced more free cash flow than EBIT over the last year. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.
Summing up
While it is always sensible to look at a company's total liabilities, it is very reassuring that Azenta has US$165.5m in net cash. And it impressed us with free cash flow of US$66m, being 1,884% of its EBIT. So we don't have any problem with Azenta's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Azenta that 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.
