Is Calliditas Therapeutics (STO:CALTX) A Risky Investment?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Calliditas Therapeutics AB (publ) (STO:CALTX) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Calliditas Therapeutics

What Is Calliditas Therapeutics's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2021 Calliditas Therapeutics had debt of kr189.2m, up from none in one year. But it also has kr955.5m in cash to offset that, meaning it has kr766.3m net cash.

How Strong Is Calliditas Therapeutics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Calliditas Therapeutics had liabilities of kr135.4m due within 12 months and liabilities of kr316.2m due beyond that. Offsetting this, it had kr955.5m in cash and kr11.3m in receivables that were due within 12 months. So it actually has kr515.2m more liquid assets than total liabilities.

This surplus suggests that Calliditas Therapeutics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Calliditas Therapeutics has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Calliditas Therapeutics's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Calliditas Therapeutics reported revenue of kr229m, which is a gain of 26,141%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Calliditas 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 Calliditas Therapeutics had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of kr462m and booked a kr500m accounting loss. But the saving grace is the kr766.3m on the balance sheet. That means it could keep spending at its current rate for more than two years. The good news for shareholders is that Calliditas Therapeutics has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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 instance, we've identified 2 warning signs for Calliditas Therapeutics that you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.