Is Calliditas Therapeutics (STO:CALTX) Using Debt Sensibly?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Calliditas Therapeutics AB (publ) (STO:CALTX) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. 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.

See our latest analysis for Calliditas Therapeutics

What Is Calliditas Therapeutics's Debt?

The image below, which you can click on for greater detail, shows that at September 2022 Calliditas Therapeutics had debt of kr448.1m, up from kr187.4m in one year. However, it does have kr736.2m in cash offsetting this, leading to net cash of kr288.0m.

A Look At Calliditas Therapeutics' Liabilities

According to the last reported balance sheet, Calliditas Therapeutics had liabilities of kr220.1m due within 12 months, and liabilities of kr572.1m due beyond 12 months. On the other hand, it had cash of kr736.2m and kr187.2m worth of receivables due within a year. So it can boast kr131.2m 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're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Calliditas Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 104%, to kr405m. So there's no doubt that shareholders are cheering for growth

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 the fact is that over the last twelve months Calliditas Therapeutics lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through kr724m of cash and made a loss of kr628m. While this does make the company a bit risky, it's important to remember it has net cash of kr288.0m. That means it could keep spending at its current rate for more than two years. Importantly, Calliditas Therapeutics's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Calliditas Therapeutics 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.