Alpine Immune Sciences (NASDAQ:ALPN) May Not Be Profitable But It Seems To Be Managing Its Debt Just Fine, Anyway
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Alpine Immune Sciences, Inc. (NASDAQ:ALPN) does carry debt. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for Alpine Immune Sciences
What Is Alpine Immune Sciences's Net Debt?
As you can see below, Alpine Immune Sciences had US$5.71m of debt at June 2022, down from US$10.3m a year prior. But it also has US$167.9m in cash to offset that, meaning it has US$162.2m net cash.
A Look At Alpine Immune Sciences' Liabilities
According to the last reported balance sheet, Alpine Immune Sciences had liabilities of US$62.6m due within 12 months, and liabilities of US$53.7m due beyond 12 months. Offsetting this, it had US$167.9m in cash and US$1.64m in receivables that were due within 12 months. So it actually has US$53.2m more liquid assets than total liabilities.
This surplus suggests that Alpine Immune Sciences is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Alpine Immune Sciences boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Alpine Immune Sciences 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.
Over 12 months, Alpine Immune Sciences reported revenue of US$32m, which is a gain of 78%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is Alpine Immune Sciences?
While Alpine Immune Sciences lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$4.5m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We think its revenue growth of 78% is a good sign. We'd see further strong growth as an optimistic indication. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Alpine Immune Sciences (of which 1 is potentially serious!) you should know about.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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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.
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