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. Importantly, Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) does carry debt. But the real question is whether this debt is making the company risky.
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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.
What Is Alnylam Pharmaceuticals's Debt?
The image below, which you can click on for greater detail, shows that at December 2020 Alnylam Pharmaceuticals had debt of US$191.3m, up from none in one year. However, it does have US$1.87b in cash offsetting this, leading to net cash of US$1.68b.
A Look At Alnylam Pharmaceuticals' Liabilities
The latest balance sheet data shows that Alnylam Pharmaceuticals had liabilities of US$585.3m due within a year, and liabilities of US$1.81b falling due after that. Offsetting these obligations, it had cash of US$1.87b as well as receivables valued at US$602.4m due within 12 months. So it actually has US$86.0m more liquid assets than total liabilities.
Having regard to Alnylam Pharmaceuticals' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$16.8b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Alnylam Pharmaceuticals boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Alnylam Pharmaceuticals can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
In the last year Alnylam Pharmaceuticals wasn't profitable at an EBIT level, but managed to grow its revenue by 124%, to US$493m. So there's no doubt that shareholders are cheering for growth
So How Risky Is Alnylam Pharmaceuticals?
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 Alnylam Pharmaceuticals had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$685m of cash and made a loss of US$858m. But the saving grace is the US$1.68b on the balance sheet. 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 Alnylam Pharmaceuticals 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. 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 1 warning sign for Alnylam Pharmaceuticals you should be aware of.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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