Is Achieve Life Sciences (NASDAQ:ACHV) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that Achieve Life Sciences, Inc. (NASDAQ:ACHV) 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 and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Achieve Life Sciences

What Is Achieve Life Sciences's Net Debt?

The image below, which you can click on for greater detail, shows that Achieve Life Sciences had debt of US$9.82m at the end of September 2024, a reduction from US$16.2m over a year. But on the other hand it also has US$42.9m in cash, leading to a US$33.1m net cash position.

How Strong Is Achieve Life Sciences' Balance Sheet?

According to the last reported balance sheet, Achieve Life Sciences had liabilities of US$6.72m due within 12 months, and liabilities of US$9.82m due beyond 12 months. Offsetting these obligations, it had cash of US$42.9m as well as receivables valued at US$111.0k due within 12 months. So it actually has US$26.5m more liquid assets than total liabilities.

It's good to see that Achieve Life Sciences has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Achieve Life Sciences 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 Achieve Life Sciences'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.

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?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Achieve Life Sciences lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$25m of cash and made a loss of US$33m. But at least it has US$33.1m on the balance sheet to spend on growth, near-term. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Achieve Life Sciences you should be aware of.

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.