Is Alpine Immune Sciences (NASDAQ:ALPN) 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.' 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. Importantly, Alpine Immune Sciences, Inc. (NASDAQ:ALPN) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Alpine Immune Sciences

How Much Debt Does Alpine Immune Sciences Carry?

The image below, which you can click on for greater detail, shows that Alpine Immune Sciences had debt of US$4.55m at the end of September 2022, a reduction from US$9.14m over a year. However, it does have US$248.9m in cash offsetting this, leading to net cash of US$244.3m.

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$68.5m due within 12 months and liabilities of US$41.1m due beyond that. On the other hand, it had cash of US$248.9m and US$677.0k worth of receivables due within a year. So it can boast US$139.9m more liquid assets than total liabilities.

This surplus liquidity suggests that Alpine Immune Sciences' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. 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. When analysing debt levels, the balance sheet is the obvious place to start. 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 30%, to US$32m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Alpine Immune Sciences?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Alpine Immune Sciences had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$42m of cash and made a loss of US$54m. But at least it has US$244.3m on the balance sheet to spend on growth, near-term. Alpine Immune Sciences's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Alpine Immune Sciences (of which 2 are a bit unpleasant!) you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.