Is Avadel Pharmaceuticals (NASDAQ:AVDL) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Avadel Pharmaceuticals plc (NASDAQ:AVDL) does carry debt. 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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

Check out our latest analysis for Avadel Pharmaceuticals

What Is Avadel Pharmaceuticals's Net Debt?

As you can see below, Avadel Pharmaceuticals had US$21.2m of debt at September 2023, down from US$136.2m a year prior. But it also has US$153.2m in cash to offset that, meaning it has US$132.0m net cash.

How Healthy Is Avadel Pharmaceuticals' Balance Sheet?

We can see from the most recent balance sheet that Avadel Pharmaceuticals had liabilities of US$54.1m falling due within a year, and liabilities of US$38.9m due beyond that. Offsetting this, it had US$153.2m in cash and US$7.51m in receivables that were due within 12 months. So it can boast US$67.7m more liquid assets than total liabilities.

This short term liquidity is a sign that Avadel Pharmaceuticals could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Avadel Pharmaceuticals 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 Avadel Pharmaceuticals'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.

In the last year Avadel Pharmaceuticals managed to produce its first revenue as a listed company, but given the lack of profit, shareholders will no doubt be hoping to see some strong increases.

So How Risky Is Avadel Pharmaceuticals?

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 Avadel Pharmaceuticals had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$116m of cash and made a loss of US$159m. But at least it has US$132.0m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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 instance, we've identified 2 warning signs for Avadel Pharmaceuticals that you should be aware of.

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.