We Think argenx (EBR:ARGX) Can Stay On Top Of Its Debt

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.' 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 real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

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 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does argenx Carry?

The image below, which you can click on for greater detail, shows that at December 2024 argenx had debt of US$39.1m, up from US$20.0m in one year. However, it does have US$3.38b in cash offsetting this, leading to net cash of US$3.34b.

A Look At argenx's Liabilities

Zooming in on the latest balance sheet data, we can see that argenx had liabilities of US$669.9m due within 12 months and liabilities of US$34.3m due beyond that. Offsetting these obligations, it had cash of US$3.38b as well as receivables valued at US$909.1m due within 12 months. So it can boast US$3.58b 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.

View our latest analysis for argenx

Although argenx made a loss at the EBIT level, last year, it was also good to see that it generated US$215m in EBIT over the last twelve months. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While argenx has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last year, argenx burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that argenx has net cash of US$3.34b, as well as more liquid assets than liabilities. So we are not troubled with argenx's debt use. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for argenx that you should be aware of.

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.