Does Arcturus Therapeutics Holdings (NASDAQ:ARCT) Have A Healthy Balance Sheet?
Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We note that Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) does have debt on its balance sheet. But is this debt a concern to shareholders?
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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for Arcturus Therapeutics Holdings
What Is Arcturus Therapeutics Holdings's Debt?
You can click the graphic below for the historical numbers, but it shows that as of December 2021 Arcturus Therapeutics Holdings had US$63.1m of debt, an increase on US$15.1m, over one year. But on the other hand it also has US$370.5m in cash, leading to a US$307.4m net cash position.
A Look At Arcturus Therapeutics Holdings' Liabilities
The latest balance sheet data shows that Arcturus Therapeutics Holdings had liabilities of US$99.5m due within a year, and liabilities of US$65.1m falling due after that. On the other hand, it had cash of US$370.5m and US$3.37m worth of receivables due within a year. So it actually has US$209.3m more liquid assets than total liabilities.
This excess liquidity is a great indication that Arcturus Therapeutics Holdings' balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Arcturus Therapeutics Holdings 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 it is future earnings, more than anything, that will determine Arcturus Therapeutics Holdings's ability to maintain a healthy balance sheet going forward. 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, Arcturus Therapeutics Holdings reported revenue of US$12m, which is a gain of 30%, 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 Arcturus Therapeutics Holdings?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Arcturus Therapeutics Holdings lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$138m and booked a US$204m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$307.4m. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, Arcturus Therapeutics Holdings may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Arcturus Therapeutics Holdings you should be aware of.
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.
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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.
