Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Agenus Inc. (NASDAQ:AGEN) does carry debt. But is this debt a concern to shareholders?
When Is Debt Dangerous?
Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. 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.
What Is Agenus's Debt?
As you can see below, Agenus had US$13.9m of debt, at March 2019, which is about the same the year before. You can click the chart for greater detail. But on the other hand it also has US$158.3m in cash, leading to a US$144.4m net cash position.
How Strong Is Agenus's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Agenus had liabilities of US$105.5m due within 12 months and liabilities of US$226.3m due beyond that. Offsetting this, it had US$158.3m in cash and US$796.0k in receivables that were due within 12 months. So its liabilities total US$172.7m more than the combination of its cash and short-term receivables.
This deficit isn't so bad because Agenus is worth US$308.8m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Agenus boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Agenus can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, Agenus reported revenue of US$115m, which is a gain of 555%. That's virtually the hole-in-one of revenue growth!
So How Risky Is Agenus?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Agenus had negative earnings before interest and tax (EBIT), over the last year. And over the same period it saw negative free cash outflow of US$18m and booked a US$87m accounting loss. But the saving grace is the US$158m on the balance sheet. That kitty means the company can keep spending for growth for at least five years, at current rates. The good news for shareholders is that Agenus has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. For riskier companies like Agenus I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.
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.
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