Is Sarepta Therapeutics (NASDAQ:SRPT) Using Too Much Debt?
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Sarepta Therapeutics, Inc. (NASDAQ:SRPT) does carry debt. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for Sarepta Therapeutics
What Is Sarepta Therapeutics's Net Debt?
As you can see below, Sarepta Therapeutics had US$1.10b of debt, at March 2022, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$2.01b in cash, so it actually has US$914.6m net cash.
A Look At Sarepta Therapeutics' Liabilities
Zooming in on the latest balance sheet data, we can see that Sarepta Therapeutics had liabilities of US$455.0m due within 12 months and liabilities of US$1.74b due beyond that. On the other hand, it had cash of US$2.01b and US$197.2m 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 Sarepta Therapeutics' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$6.20b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Sarepta Therapeutics boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Sarepta Therapeutics's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Sarepta Therapeutics reported revenue of US$766m, which is a gain of 34%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.
So How Risky Is Sarepta Therapeutics?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Sarepta 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$285m and booked a US$357m accounting loss. Given it only has net cash of US$914.6m, the company may need to raise more capital if it doesn't reach break-even soon. Sarepta Therapeutics's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Sarepta Therapeutics you should be aware of.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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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.
