Is Calliditas Therapeutics (STO:CALTX) Weighed On By Its Debt Load?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. 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 Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

See our latest analysis for Calliditas Therapeutics

What Is Calliditas Therapeutics's Debt?

As you can see below, at the end of June 2023, Calliditas Therapeutics had kr759.1m of debt, up from kr437.4m a year ago. Click the image for more detail. But on the other hand it also has kr866.2m in cash, leading to a kr107.1m net cash position.

How Healthy Is Calliditas Therapeutics' Balance Sheet?

The latest balance sheet data shows that Calliditas Therapeutics had liabilities of kr290.3m due within a year, and liabilities of kr914.5m falling due after that. Offsetting this, it had kr866.2m in cash and kr146.4m in receivables that were due within 12 months. So its liabilities total kr192.2m more than the combination of its cash and short-term receivables.

Since publicly traded Calliditas Therapeutics shares are worth a total of kr5.57b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Calliditas Therapeutics also has more cash than debt, so we're pretty confident 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 Calliditas Therapeutics 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.

In the last year Calliditas Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 235%, to kr1.1b. 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 we do note that Calliditas Therapeutics had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through kr292m of cash and made a loss of kr292m. While this does make the company a bit risky, it's important to remember it has net cash of kr107.1m. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. High growth pre-profit companies may well be risky, but they can also offer great rewards. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Calliditas Therapeutics insider transactions.

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.