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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. Importantly, Karyopharm Therapeutics Inc. (NASDAQ:KPTI) does carry debt. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Karyopharm Therapeutics's Debt?
You can click the graphic below for the historical numbers, but it shows that Karyopharm Therapeutics had US$104.3m of debt in December 2020, down from US$109.9m, one year before. However, its balance sheet shows it holds US$273.5m in cash, so it actually has US$169.2m net cash.
A Look At Karyopharm Therapeutics' Liabilities
We can see from the most recent balance sheet that Karyopharm Therapeutics had liabilities of US$52.6m falling due within a year, and liabilities of US$209.9m due beyond that. Offsetting these obligations, it had cash of US$273.5m as well as receivables valued at US$12.9m due within 12 months. So it actually has US$23.8m more liquid assets than total liabilities.
This surplus suggests that Karyopharm Therapeutics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Karyopharm Therapeutics boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Karyopharm 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, Karyopharm Therapeutics reported revenue of US$108m, which is a gain of 163%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!
So How Risky Is Karyopharm Therapeutics?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Karyopharm Therapeutics lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$169m and booked a US$196m accounting loss. But at least it has US$169.2m on the balance sheet to spend on growth, near-term. Importantly, Karyopharm Therapeutics's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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 1 warning sign for Karyopharm Therapeutics that you should be aware of before investing here.
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.
This article by Simply Wall St is general in nature. 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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