Does Fulgent Genetics (NASDAQ: FLGT) have a healthy track record?

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Warren Buffett said: “Volatility is far from synonymous with risk”. So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. Like many other companies Fulgent Genetics, Inc. (NASDAQ: FLGT) uses debt. But should shareholders be concerned about its use of debt?

What risk does debt entail?

Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that he has to raise new equity at low cost, thereby constantly diluting shareholders. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. The first step in examining a business’s debt levels is to consider its cash flow and debt together.

What is the debt of Fulgent Genetics?

As you can see below, at the end of September 2021, Fulgent Genetics was $ 21.1 million in debt, up from none a year ago. Click on the image for more details. However, his balance sheet shows that he holds $ 470.0 million in cash, so he actually has $ 448.9 million in net cash.

NasdaqGM: FLGT History of debt to equity December 5, 2021

How strong is Fulgent Genetics’ balance sheet?

Zooming in on the latest balance sheet data, we can see that Fulgent Genetics had a liability of US $ 147.2 million due within 12 months and US $ 13.1 million liability beyond. On the other hand, it had $ 470.0 million in cash and $ 125.6 million in receivables due within one year. So he actually has $ 435.3 million Following liquid assets as total liabilities.

It is good to see that Fulgent Genetics has a lot of liquidity on its balance sheet, which suggests careful management of the liabilities. Due to its strong net asset position, it should not encounter any problems with its lenders. Put simply, the fact that Fulgent Genetics has more money than debt is arguably a good indication that it can safely manage its debt.

Best of all, Fulgent Genetics increased their EBIT by 1,089% last year, which is an impressive improvement. This boost will make it even easier to pay down debt in the future. There is no doubt that we learn the most about debt from the balance sheet. But it is future profits, more than anything, that will determine Fulgent Genetics’ ability to maintain a healthy balance sheet in the future. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

Finally, a business can only pay off its debts with hard cash, not with book profits. Fulgent Genetics may have net cash on the balance sheet, but it’s always interesting to see the extent to which the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and capacity. to manage debt. Over the past two years, Fulgent Genetics has generated strong free cash flow equivalent to 66% of its EBIT, roughly what we expected. This hard cash allows him to reduce his debt whenever he wants.

In summary

While we sympathize with investors who find the debt of concern, you should keep in mind that Fulgent Genetics has net cash of US $ 448.9 million, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 1,089% over last year. So is Fulgent Genetics’ debt a risk? It does not seem to us. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks lie on the balance sheet – far from it. Be aware that Fulgent Genetics shows 3 warning signs in our investment analysis , and 1 of them cannot be ignored …

Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash net growth stocks today.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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