Does Achieve Life Sciences (NASDAQ:ACHV) Have A Healthy Balance Sheet?

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. As with many other companies Achieve Life Sciences, Inc. (NASDAQ:ACHV) makes use of debt. But should shareholders be worried about its use of debt?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Achieve Life Sciences

How Much Debt Does Achieve Life Sciences Carry?

As you can see below, Achieve Life Sciences had US$16.2m of debt, at September 2023, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$19.9m in cash offsetting this, leading to net cash of US$3.72m.

How Strong Is Achieve Life Sciences' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Achieve Life Sciences had liabilities of US$4.08m due within 12 months and liabilities of US$16.2m due beyond that. Offsetting this, it had US$19.9m in cash and US$83.0k in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that Achieve Life Sciences' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$108.8m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Achieve Life Sciences boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Achieve Life Sciences 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.

Since Achieve Life Sciences doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

So How Risky Is Achieve Life Sciences?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Achieve Life Sciences 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$31m and booked a US$36m accounting loss. Given it only has net cash of US$3.72m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. To that end, you should learn about the 5 warning signs we've spotted with Achieve Life Sciences (including 2 which shouldn't be ignored) .

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.