In This Article:
David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that IDEXX Laboratories, Inc. (NASDAQ:IDXX) does have debt on its balance sheet. 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. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for IDEXX Laboratories
What Is IDEXX Laboratories's Debt?
As you can see below, IDEXX Laboratories had US$873.9m of debt at September 2024, down from US$1.02b a year prior. On the flip side, it has US$308.6m in cash leading to net debt of about US$565.3m.
How Healthy Is IDEXX Laboratories' Balance Sheet?
We can see from the most recent balance sheet that IDEXX Laboratories had liabilities of US$1.01b falling due within a year, and liabilities of US$723.5m due beyond that. Offsetting these obligations, it had cash of US$308.6m as well as receivables valued at US$587.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$837.0m.
Of course, IDEXX Laboratories has a titanic market capitalization of US$34.5b, 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.
We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.
IDEXX Laboratories has a low net debt to EBITDA ratio of only 0.44. And its EBIT easily covers its interest expense, being 62.3 times the size. So we're pretty relaxed about its super-conservative use of debt. Fortunately, IDEXX Laboratories grew its EBIT by 8.8% in the last year, making that debt load look even more manageable. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine IDEXX Laboratories'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.