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Despite Lacking Profits Albireo Pharma (NASDAQ:ALBO) Seems To Be On Top Of Its Debt

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.' 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 can see that Albireo Pharma, Inc. (NASDAQ:ALBO) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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.

View our latest analysis for Albireo Pharma

How Much Debt Does Albireo Pharma Carry?

The chart below, which you can click on for greater detail, shows that Albireo Pharma had US$10.1m in debt in March 2022; about the same as the year before. But on the other hand it also has US$216.7m in cash, leading to a US$206.6m net cash position.


How Healthy Is Albireo Pharma's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Albireo Pharma had liabilities of US$31.5m due within 12 months and liabilities of US$81.6m due beyond that. Offsetting this, it had US$216.7m in cash and US$1.28m in receivables that were due within 12 months. So it actually has US$104.9m more liquid assets than total liabilities.

This surplus suggests that Albireo Pharma is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Albireo Pharma boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Albireo Pharma 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 Albireo Pharma wasn't profitable at an EBIT level, but managed to grow its revenue by 421%, to US$45m. That's virtually the hole-in-one of revenue growth!

So How Risky Is Albireo Pharma?

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 Albireo Pharma lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$109m of cash and made a loss of US$33m. But at least it has US$206.6m on the balance sheet to spend on growth, near-term. Importantly, Albireo Pharma's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Albireo Pharma's profit, revenue, and operating cashflow have changed over the last few years.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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.

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