Is Ardelyx (NASDAQ:ARDX) Weighed On By Its Debt Load?

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 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 can see that Ardelyx, Inc. (NASDAQ:ARDX) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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

What Is Ardelyx's Debt?

As you can see below, at the end of June 2024, Ardelyx had US$123.4m of debt, up from US$40.2m a year ago. Click the image for more detail. However, its balance sheet shows it holds US$186.0m in cash, so it actually has US$62.6m net cash.

A Look At Ardelyx's Liabilities

Zooming in on the latest balance sheet data, we can see that Ardelyx had liabilities of US$62.4m due within 12 months and liabilities of US$134.1m due beyond that. Offsetting these obligations, it had cash of US$186.0m as well as receivables valued at US$37.2m due within 12 months. So it can boast US$26.7m more liquid assets than total liabilities.

This state of affairs indicates that Ardelyx's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$1.49b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Ardelyx boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Ardelyx'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 Ardelyx wasn't profitable at an EBIT level, but managed to grow its revenue by 153%, to US$210m. So there's no doubt that shareholders are cheering for growth

So How Risky Is Ardelyx?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Ardelyx lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$86m of cash and made a loss of US$65m. However, it has net cash of US$62.6m, so it has a bit of time before it will need more capital. Importantly, Ardelyx's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. Case in point: We've spotted 3 warning signs for Ardelyx you should be aware of.

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.