Is Athenex (NASDAQ:ATNX) Weighed On By Its Debt Load?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We note that Athenex, Inc. (NASDAQ:ATNX) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Athenex

What Is Athenex's Net Debt?

As you can see below, at the end of December 2020, Athenex had US$147.6m of debt, up from US$52.8m a year ago. Click the image for more detail. But it also has US$208.2m in cash to offset that, meaning it has US$60.6m net cash.

How Healthy Is Athenex's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Athenex had liabilities of US$62.1m due within 12 months and liabilities of US$156.8m due beyond that. Offsetting this, it had US$208.2m in cash and US$28.2m in receivables that were due within 12 months. So it can boast US$17.4m more liquid assets than total liabilities.

This short term liquidity is a sign that Athenex could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Athenex 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 Athenex'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, Athenex reported revenue of US$144m, which is a gain of 42%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Athenex?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Athenex had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$145m of cash and made a loss of US$146m. Given it only has net cash of US$60.6m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Athenex may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 4 warning signs we've spotted with Athenex .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. 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.
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