Is Ascendis Pharma (NASDAQ:ASND) A Risky Investment?

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, Ascendis Pharma A/S (NASDAQ:ASND) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Ascendis Pharma

What Is Ascendis Pharma's Debt?

The image below, which you can click on for greater detail, shows that at June 2022 Ascendis Pharma had debt of €399.0m, up from none in one year. But on the other hand it also has €955.2m in cash, leading to a €556.1m net cash position.

How Strong Is Ascendis Pharma's Balance Sheet?

We can see from the most recent balance sheet that Ascendis Pharma had liabilities of €115.1m falling due within a year, and liabilities of €603.9m due beyond that. On the other hand, it had cash of €955.2m and €20.6m worth of receivables due within a year. So it can boast €256.7m more liquid assets than total liabilities.

This surplus suggests that Ascendis Pharma has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Ascendis Pharma boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Ascendis Pharma'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, Ascendis Pharma reported revenue of €19m, which is a gain of 276%, 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 Ascendis Pharma?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Ascendis Pharma had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through €500m of cash and made a loss of €393m. But the saving grace is the €556.1m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Importantly, Ascendis Pharma'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. 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, we've discovered 1 warning sign for Ascendis Pharma that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.