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Health Check: How Prudently Does Travere Therapeutics (NASDAQ:TVTX) Use 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.' 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 can see that Travere Therapeutics, Inc. (NASDAQ:TVTX) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Travere Therapeutics

How Much Debt Does Travere Therapeutics Carry?

The image below, which you can click on for greater detail, shows that at March 2022 Travere Therapeutics had debt of US$374.3m, up from US$218.1m in one year. But it also has US$603.4m in cash to offset that, meaning it has US$229.1m net cash.

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

How Healthy Is Travere Therapeutics' Balance Sheet?

According to the last reported balance sheet, Travere Therapeutics had liabilities of US$119.5m due within 12 months, and liabilities of US$500.8m due beyond 12 months. On the other hand, it had cash of US$603.4m and US$14.7m worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Travere Therapeutics' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$1.57b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Travere Therapeutics also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Travere Therapeutics 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 Travere Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 15%, to US$229m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Travere Therapeutics?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Travere Therapeutics lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$64m of cash and made a loss of US$202m. While this does make the company a bit risky, it's important to remember it has net cash of US$229.1m. That means it could keep spending at its current rate for more than two years. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example - Travere Therapeutics has 3 warning signs we think 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.

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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