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, AnaptysBio, Inc. (NASDAQ:ANAB) 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
How Much Debt Does AnaptysBio Carry?
You can click the graphic below for the historical numbers, but it shows that AnaptysBio had US$4.78m of debt in June 2019, down from US$11.6m, one year before. However, it does have US$422.2m in cash offsetting this, leading to net cash of US$417.4m.
How Strong Is AnaptysBio's Balance Sheet?
We can see from the most recent balance sheet that AnaptysBio had liabilities of US$30.6m falling due within a year, and liabilities of US$1.11m due beyond that. Offsetting this, it had US$422.2m in cash and US$5.00m in receivables that were due within 12 months. So it can boast US$395.5m more liquid assets than total liabilities.
This surplus liquidity suggests that AnaptysBio's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this basis we think its balance sheet is strong like a sleek panther or even a proud lion. Simply put, the fact that AnaptysBio has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if AnaptysBio 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, AnaptysBio reported revenue of US$10m, which is a gain of 233%. When it comes to revenue growth, that's like nailing the game winning 3-pointer!
So How Risky Is AnaptysBio?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months AnaptysBio lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$60m and booked a US$79m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$422m. That kitty means the company can keep spending for growth for at least five years, at current rates. Importantly, AnaptysBio's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. For riskier companies like AnaptysBio 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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