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. We can see that TG Therapeutics, Inc. (NASDAQ:TGTX) does use debt in its business. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
What Is TG Therapeutics's Debt?
The image below, which you can click on for greater detail, shows that at June 2019 TG Therapeutics had debt of US$28.7m, up from US$210.0k in one year. However, it does have US$85.0m in cash offsetting this, leading to net cash of US$56.3m.
How Healthy Is TG Therapeutics's Balance Sheet?
The latest balance sheet data shows that TG Therapeutics had liabilities of US$56.0m due within a year, and liabilities of US$37.4m falling due after that. Offsetting these obligations, it had cash of US$85.0m as well as receivables valued at US$95.0k due within 12 months. So its liabilities total US$8.31m more than the combination of its cash and short-term receivables.
This state of affairs indicates that TG Therapeutics's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$624.1m company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, TG 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 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.
Given its lack of meaningful operating revenue, TG Therapeutics shareholders no doubt hope it can fund itself until it has a profitable product.
So How Risky Is TG Therapeutics?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year TG Therapeutics had negative earnings before interest and tax (EBIT), truth be told. And over the same period it saw negative free cash outflow of US$136m and booked a US$159m accounting loss. Given it only has net cash of US$85m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting TG Therapeutics insider transactions.
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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