Advertisement
U.S. markets closed
  • S&P Futures

    5,304.25
    -4.00 (-0.08%)
     
  • Dow Futures

    40,140.00
    -36.00 (-0.09%)
     
  • Nasdaq Futures

    18,465.00
    -38.75 (-0.21%)
     
  • Russell 2000 Futures

    2,145.20
    +6.80 (+0.32%)
     
  • Crude Oil

    83.11
    -0.06 (-0.07%)
     
  • Gold

    2,254.80
    +16.40 (+0.73%)
     
  • Silver

    25.10
    +0.18 (+0.74%)
     
  • EUR/USD

    1.0786
    -0.0007 (-0.06%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • Vix

    13.01
    +0.23 (+1.80%)
     
  • GBP/USD

    1.2629
    +0.0007 (+0.05%)
     
  • USD/JPY

    151.3630
    -0.0090 (-0.01%)
     
  • Bitcoin USD

    70,739.32
    +1,195.73 (+1.72%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,295.15
    +127.08 (+0.32%)
     

BeiGene (NASDAQ:BGNE) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that BeiGene, Ltd. (NASDAQ:BGNE) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for BeiGene

How Much Debt Does BeiGene Carry?

As you can see below, BeiGene had US$565.9m of debt at June 2022, down from US$629.7m a year prior. However, it does have US$5.70b in cash offsetting this, leading to net cash of US$5.14b.

debt-equity-history-analysis
debt-equity-history-analysis

How Strong Is BeiGene's Balance Sheet?

We can see from the most recent balance sheet that BeiGene had liabilities of US$1.40b falling due within a year, and liabilities of US$677.3m due beyond that. Offsetting this, it had US$5.70b in cash and US$192.3m in receivables that were due within 12 months. So it actually has US$3.82b more liquid assets than total liabilities.

This surplus suggests that BeiGene 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. Simply put, the fact that BeiGene 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 BeiGene 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.

In the last year BeiGene wasn't profitable at an EBIT level, but managed to grow its revenue by 13%, to US$1.1b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is BeiGene?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that BeiGene had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$2.0b and booked a US$2.0b accounting loss. But the saving grace is the US$5.14b on the balance sheet. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for BeiGene that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here

Advertisement