Despite Lacking Profits Alpine Immune Sciences (NASDAQ:ALPN) Seems To Be On Top Of Its Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Alpine Immune Sciences, Inc. (NASDAQ:ALPN) 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 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Alpine Immune Sciences

What Is Alpine Immune Sciences's Debt?

As you can see below, Alpine Immune Sciences had US$6.86m of debt at March 2022, down from US$10.2m a year prior. However, it does have US$171.9m in cash offsetting this, leading to net cash of US$165.0m.

A Look At Alpine Immune Sciences' Liabilities

Zooming in on the latest balance sheet data, we can see that Alpine Immune Sciences had liabilities of US$68.2m due within 12 months and liabilities of US$50.3m due beyond that. Offsetting these obligations, it had cash of US$171.9m as well as receivables valued at US$453.0k due within 12 months. So it actually has US$53.8m more liquid assets than total liabilities.

This excess liquidity suggests that Alpine Immune Sciences is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Alpine Immune Sciences has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Alpine Immune 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.

In the last year Alpine Immune Sciences wasn't profitable at an EBIT level, but managed to grow its revenue by 196%, to US$34m. So there's no doubt that shareholders are cheering for growth

So How Risky Is Alpine Immune Sciences?

Although Alpine Immune Sciences had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$6.1m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We think its revenue growth of 196% is a good sign. There's no doubt fast top line growth can cure all manner of ills, for a stock. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Alpine Immune Sciences (of which 1 is a bit concerning!) you should know about.

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.