Apellis Pharmaceuticals (NASDAQ:APLS) Is Making Moderate Use Of Debt

Warren Buffett famously said, '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. We can see that Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Apellis Pharmaceuticals

How Much Debt Does Apellis Pharmaceuticals Carry?

As you can see below, at the end of December 2024, Apellis Pharmaceuticals had US$452.8m of debt, up from US$93.0m a year ago. Click the image for more detail. On the flip side, it has US$416.1m in cash leading to net debt of about US$36.7m.

A Look At Apellis Pharmaceuticals' Liabilities

Zooming in on the latest balance sheet data, we can see that Apellis Pharmaceuticals had liabilities of US$185.5m due within 12 months and liabilities of US$471.0m due beyond that. On the other hand, it had cash of US$416.1m and US$271.7m worth of receivables due within a year. So it can boast US$31.3m more liquid assets than total liabilities.

This state of affairs indicates that Apellis Pharmaceuticals' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$3.16b company is short on cash, but still worth keeping an eye on the balance sheet. Carrying virtually no net debt, Apellis Pharmaceuticals has a very light debt load indeed. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Apellis 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.

In the last year Apellis Pharmaceuticals wasn't profitable at an EBIT level, but managed to grow its revenue by 97%, to US$781m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

While we can certainly appreciate Apellis Pharmaceuticals's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. To be specific the EBIT loss came in at US$165m. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. So it seems too risky for our taste. 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 1 warning sign for Apellis Pharmaceuticals 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.