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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. We can see that TG Therapeutics, Inc. (NASDAQ:TGTX) does use debt in its business. But is this debt a concern to shareholders?
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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is TG Therapeutics's Net Debt?
The image below, which you can click on for greater detail, shows that at March 2022 TG Therapeutics had debt of US$67.4m, up from US$31.0m in one year. However, its balance sheet shows it holds US$233.2m in cash, so it actually has US$165.8m net cash.
How Healthy Is TG Therapeutics' Balance Sheet?
The latest balance sheet data shows that TG Therapeutics had liabilities of US$54.7m due within a year, and liabilities of US$78.0m falling due after that. On the other hand, it had cash of US$233.2m and US$903.0k worth of receivables due within a year. So it can boast US$101.5m more liquid assets than total liabilities.
This excess liquidity suggests that TG Therapeutics is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, TG 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 TG 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, TG Therapeutics reported revenue of US$7.9m, which is a gain of 772%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!
So How Risky Is TG Therapeutics?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months TG 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$283m and booked a US$326m accounting loss. Given it only has net cash of US$165.8m, the company may need to raise more capital if it doesn't reach break-even soon. Importantly, TG 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. Be aware that TG Therapeutics is showing 3 warning signs in our investment analysis , you should know about...
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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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.