Warren Buffett said: “Volatility is far from synonymous with risk”. When we think about how risky a business is, we always like to look at its use of debt because debt overload can lead to bankruptcy. We note that Global Blood Therapeutics, Inc. (NASDAQ: GBT) has debt on its balance sheet. But does this debt worry shareholders?
When is debt a problem?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. Of course, debt can be an important tool in businesses, especially capital intensive businesses. The first step in examining a company’s debt levels is to consider its cash flow and debt together.
Check out our latest review for Global Blood Therapeutics
What is Global Blood Therapeutics’ debt?
As you can see below, at the end of June 2021, Global Blood Therapeutics was in debt of $ 149.3 million, up from $ 73.8 million a year ago. Click on the image for more details. However, it has US $ 437.4 million in cash offsetting this, leading to net cash of US $ 288.1 million.
How strong is Global Blood Therapeutics’ balance sheet?
Zooming in on the latest balance sheet data, we can see that Global Blood Therapeutics had a liability of US $ 72.7 million due within 12 months and a liability of US $ 226.5 million beyond. In return, he had $ 437.4 million in cash and $ 19.5 million in receivables due within 12 months. So he actually has $ 157.7 million Following liquid assets as total liabilities.
This short-term liquidity is a sign that Global Blood Therapeutics could likely repay its debt easily, as its balance sheet is far from tight. Put simply, the fact that Global Blood Therapeutics has more cash than debt is arguably a good indication that it can safely manage its debt. The balance sheet is clearly the area you need to focus on when analyzing debt. But it is future profits, more than anything, that will determine Global Blood Therapeutics’ ability to maintain a healthy balance sheet in the future. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Year over year, Global Blood Therapeutics reported revenue of US $ 165 million, a gain of 245%, although it reported no profit before interest and taxes. When it comes to revenue growth, it’s like winning the game by earning 3 points!
So what is the risk of Global Blood Therapeutics?
Statistically speaking, businesses that lose money are riskier than those that earn it. And the point is that over the past twelve months, Global Blood Therapeutics has lost money in earnings before interest and taxes (EBIT). Indeed, during this period, it burned $ 216 million in cash and recorded a loss of $ 266 million. However, he has a net cash position of US $ 288.1 million, so he has some time left before he needs more capital. It is important to note that Global Blood Therapeutics revenue growth is coming. While unprofitable businesses can be risky, they can also grow quickly and rapidly during those pre-profit years. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. We have identified 2 warning signs with Global Blood Therapeutics, and understanding them should be part of your investment process.
If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash net growth stocks.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.