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.' 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. We note that Meridian Bioscience, Inc. (NASDAQ:VIVO) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Meridian Bioscience

What Is Meridian Bioscience's Debt?

You can click the graphic below for the historical numbers, but it shows that Meridian Bioscience had US$25.0m of debt in March 2022, down from US$50.3m, one year before. But it also has US$76.5m in cash to offset that, meaning it has US$51.5m net cash.

How Strong Is Meridian Bioscience's Balance Sheet?

The latest balance sheet data shows that Meridian Bioscience had liabilities of US$56.5m due within a year, and liabilities of US$40.7m falling due after that. Offsetting this, it had US$76.5m in cash and US$59.2m in receivables that were due within 12 months. So it can boast US$38.5m more liquid assets than total liabilities.

This short term liquidity is a sign that Meridian Bioscience could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Meridian Bioscience has more cash than debt is arguably a good indication that it can manage its debt safely.

In fact Meridian Bioscience's saving grace is its low debt levels, because its EBIT has tanked 20% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. There's no doubt that we learn most about debt from the balance sheet. 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.