Does Arcturus Therapeutics Holdings (NASDAQ:ARCT) Have A Healthy Balance Sheet?

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 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. We note that Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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.

See our latest analysis for Arcturus Therapeutics Holdings

What Is Arcturus Therapeutics Holdings's Debt?

As you can see below, Arcturus Therapeutics Holdings had US$20.0m of debt at September 2023, down from US$59.7m a year prior. However, it does have US$311.9m in cash offsetting this, leading to net cash of US$291.9m.

How Strong Is Arcturus Therapeutics Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Arcturus Therapeutics Holdings had liabilities of US$87.7m due within 12 months and liabilities of US$89.9m due beyond that. On the other hand, it had cash of US$311.9m and US$38.2m worth of receivables due within a year. So it actually has US$172.6m more liquid assets than total liabilities.

It's good to see that Arcturus Therapeutics Holdings has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Arcturus Therapeutics Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

It was also good to see that despite losing money on the EBIT line last year, Arcturus Therapeutics Holdings turned things around in the last 12 months, delivering and EBIT of US$62m. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Arcturus Therapeutics Holdings's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Arcturus Therapeutics Holdings may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, Arcturus Therapeutics Holdings actually produced more free cash flow than EBIT over the last year. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to investigate a company's debt, in this case Arcturus Therapeutics Holdings has US$291.9m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 223% of that EBIT to free cash flow, bringing in US$137m. So we don't think Arcturus Therapeutics Holdings's use of debt is risky. 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. To that end, you should be aware of the 2 warning signs we've spotted with Arcturus Therapeutics Holdings .

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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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.