Is Pulse Biosciences (NASDAQ:PLSE) Weighed On By Its Debt Load?
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 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, Pulse Biosciences, Inc. (NASDAQ:PLSE) does carry debt. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
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 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.
Check out our latest analysis for Pulse Biosciences
What Is Pulse Biosciences's Debt?
The image below, which you can click on for greater detail, shows that at June 2021 Pulse Biosciences had debt of US$1.73m, up from none in one year. But it also has US$47.4m in cash to offset that, meaning it has US$45.7m net cash.
A Look At Pulse Biosciences' Liabilities
We can see from the most recent balance sheet that Pulse Biosciences had liabilities of US$9.84m falling due within a year, and liabilities of US$10.4m due beyond that. On the other hand, it had cash of US$47.4m and US$8.37m worth of receivables due within a year. So it actually has US$35.5m more liquid assets than total liabilities.
This short term liquidity is a sign that Pulse Biosciences could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Pulse Biosciences has more cash than debt is arguably a good indication that 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 Pulse Biosciences can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Given its lack of meaningful operating revenue, Pulse Biosciences shareholders no doubt hope it can fund itself until it can sell some of its new medical technology.
So How Risky Is Pulse Biosciences?
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 Pulse Biosciences lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$46m and booked a US$61m accounting loss. Given it only has net cash of US$45.7m, the company may need to raise more capital if it doesn't reach break-even soon. 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for Pulse Biosciences you should be aware of, and 2 of them shouldn't be ignored.
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.
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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