Here's Why Arcturus Therapeutics Holdings (NASDAQ:ARCT) Can Manage Its Debt Despite Losing Money

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) 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 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Arcturus Therapeutics Holdings

What Is Arcturus Therapeutics Holdings's Debt?

As you can see below, Arcturus Therapeutics Holdings had US$59.7m of debt, at September 2022, which is about the same as the year before. You can click the chart for greater detail. But it also has US$237.7m in cash to offset that, meaning it has US$177.9m net cash.

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$75.8m due within 12 months and liabilities of US$72.1m due beyond that. Offsetting this, it had US$237.7m in cash and US$2.04m in receivables that were due within 12 months. So it actually has US$91.8m more liquid assets than total liabilities.

This excess liquidity suggests that Arcturus Therapeutics Holdings is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Arcturus Therapeutics Holdings can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Arcturus Therapeutics Holdings reported revenue of US$52m, which is a gain of 485%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Arcturus Therapeutics Holdings?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Arcturus Therapeutics Holdings lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$176m and booked a US$147m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$177.9m. That kitty means the company can keep spending for growth for at least two years, at current rates. Importantly, Arcturus Therapeutics Holdings's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great 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. Case in point: We've spotted 1 warning sign for Arcturus Therapeutics Holdings you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.