Does Viridian Therapeutics (NASDAQ:VRDN) Have A Healthy Balance Sheet?
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, Viridian Therapeutics, Inc. (NASDAQ:VRDN) does carry debt. But should shareholders be worried about its use of debt?
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for Viridian Therapeutics
What Is Viridian Therapeutics's Debt?
The image below, which you can click on for greater detail, shows that at June 2022 Viridian Therapeutics had debt of US$4.59m, up from none in one year. But on the other hand it also has US$161.2m in cash, leading to a US$156.6m net cash position.
How Healthy Is Viridian Therapeutics' Balance Sheet?
The latest balance sheet data shows that Viridian Therapeutics had liabilities of US$21.4m due within a year, and liabilities of US$6.53m falling due after that. Offsetting these obligations, it had cash of US$161.2m as well as receivables valued at US$693.0k due within 12 months. So it actually has US$134.0m more liquid assets than total liabilities.
This surplus suggests that Viridian Therapeutics 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, Viridian Therapeutics 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 Viridian Therapeutics'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, Viridian Therapeutics made a loss at the EBIT level, and saw its revenue drop to US$894k, which is a fall of 66%. That makes us nervous, to say the least.
So How Risky Is Viridian Therapeutics?
Statistically speaking companies that lose money are riskier than those that make money. And in the last year Viridian Therapeutics had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$68m and booked a US$98m accounting loss. However, it has net cash of US$156.6m, so it has a bit of time before it will need more capital. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for Viridian Therapeutics (2 shouldn't be ignored!) that you should be aware of before investing here.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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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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