Is Alnylam Pharmaceuticals (NASDAQ:ALNY) Weighed On By Its Debt Load?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

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How Much Debt Does Alnylam Pharmaceuticals Carry?

As you can see below, at the end of June 2022, Alnylam Pharmaceuticals had US$677.7m of debt, up from US$433.2m a year ago. Click the image for more detail. But on the other hand it also has US$2.11b in cash, leading to a US$1.43b net cash position.

How Strong Is Alnylam Pharmaceuticals' Balance Sheet?

According to the last reported balance sheet, Alnylam Pharmaceuticals had liabilities of US$657.7m due within 12 months, and liabilities of US$2.50b due beyond 12 months. On the other hand, it had cash of US$2.11b and US$142.3m worth of receivables due within a year. So it has liabilities totalling US$901.5m more than its cash and near-term receivables, combined.

Of course, Alnylam Pharmaceuticals has a titanic market capitalization of US$23.5b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Alnylam Pharmaceuticals boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Alnylam Pharmaceuticals 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.

Over 12 months, Alnylam Pharmaceuticals reported revenue of US$884m, which is a gain of 29%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

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 in the last year Alnylam Pharmaceuticals had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$660m of cash and made a loss of US$981m. While this does make the company a bit risky, it's important to remember it has net cash of US$1.43b. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, Alnylam Pharmaceuticals may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example - Alnylam Pharmaceuticals has 2 warning signs we think 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.