- Oops!Something went wrong.Please try again later.
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 uniQure N.V. (NASDAQ:QURE) does use debt in its business. But the more important question is: how much risk is that debt creating?
Why Does Debt Bring Risk?
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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
What Is uniQure's Net Debt?
As you can see below, uniQure had US$35.5m of debt, at September 2020, which is about the same as the year before. You can click the chart for greater detail. But it also has US$279.5m in cash to offset that, meaning it has US$244.0m net cash.
How Healthy Is uniQure's Balance Sheet?
According to the last reported balance sheet, uniQure had liabilities of US$33.4m due within 12 months, and liabilities of US$89.3m due beyond 12 months. On the other hand, it had cash of US$279.5m and US$223.0k worth of receivables due within a year. So it can boast US$157.1m more liquid assets than total liabilities.
This surplus suggests that uniQure has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, uniQure 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 ultimately the future profitability of the business will decide if uniQure can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year uniQure had a loss before interest and tax, and actually shrunk its revenue by 3.5%, to US$6.1m. We would much prefer see growth.
So How Risky Is uniQure?
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 uniQure lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$132m of cash and made a loss of US$166m. While this does make the company a bit risky, it's important to remember it has net cash of US$244.0m. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 5 warning signs for uniQure (1 is significant!) that you should be aware of before investing here.
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.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.