Does argenx (EBR:ARGX) Have A Healthy Balance Sheet?

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, argenx SE (EBR:ARGX) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for argenx

What Is argenx's Net Debt?

As you can see below, at the end of June 2022, argenx had US$9.70m of debt, up from US$7.88m a year ago. Click the image for more detail. However, its balance sheet shows it holds US$2.60b in cash, so it actually has US$2.59b net cash.

How Strong Is argenx's Balance Sheet?

We can see from the most recent balance sheet that argenx had liabilities of US$264.6m falling due within a year, and liabilities of US$14.4m due beyond that. Offsetting this, it had US$2.60b in cash and US$113.9m in receivables that were due within 12 months. So it actually has US$2.43b more liquid assets than total liabilities.

This surplus suggests that argenx has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that argenx has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if argenx can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year argenx had a loss before interest and tax, and actually shrunk its revenue by 44%, to US$286m. That makes us nervous, to say the least.

So How Risky Is argenx?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that argenx had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$874m and booked a US$909m accounting loss. With only US$2.59b on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for argenx that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.