Rock star Growth Puts Ardelyx (NASDAQ:ARDX) In A Position To Use Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Ardelyx, Inc. (NASDAQ:ARDX) does carry debt. But should shareholders be worried about its use of debt?

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. 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 examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Ardelyx

What Is Ardelyx's Debt?

The chart below, which you can click on for greater detail, shows that Ardelyx had US$26.9m in debt in March 2023; about the same as the year before. But on the other hand it also has US$130.4m in cash, leading to a US$103.5m net cash position.

How Healthy Is Ardelyx's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Ardelyx had liabilities of US$63.1m due within 12 months and liabilities of US$28.5m due beyond that. On the other hand, it had cash of US$130.4m and US$12.1m worth of receivables due within a year. So it actually has US$50.9m more liquid assets than total liabilities.

This short term liquidity is a sign that Ardelyx could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Ardelyx 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 it is future earnings, more than anything, that will determine Ardelyx'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.

Over 12 months, Ardelyx reported revenue of US$63m, which is a gain of 1,483%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is Ardelyx?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Ardelyx had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$87m of cash and made a loss of US$66m. While this does make the company a bit risky, it's important to remember it has net cash of US$103.5m. That means it could keep spending at its current rate for more than two years. The good news for shareholders is that Ardelyx has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Ardelyx has 2 warning signs we think you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.