Does Axsome Therapeutics (NASDAQ:AXSM) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Axsome Therapeutics, Inc. (NASDAQ:AXSM) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Axsome Therapeutics

What Is Axsome Therapeutics's Debt?

The chart below, which you can click on for greater detail, shows that Axsome Therapeutics had US$180.0m in debt in September 2024; about the same as the year before. But it also has US$327.3m in cash to offset that, meaning it has US$147.3m net cash.

A Look At Axsome Therapeutics' Liabilities

Zooming in on the latest balance sheet data, we can see that Axsome Therapeutics had liabilities of US$196.2m due within 12 months and liabilities of US$272.4m due beyond that. On the other hand, it had cash of US$327.3m and US$124.1m worth of receivables due within a year. So it has liabilities totalling US$17.1m more than its cash and near-term receivables, combined.

Having regard to Axsome Therapeutics' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$4.78b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Axsome Therapeutics also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Axsome Therapeutics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Axsome Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 51%, to US$338m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Axsome Therapeutics?

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 Axsome Therapeutics had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$133m of cash and made a loss of US$311m. But at least it has US$147.3m on the balance sheet to spend on growth, near-term. Axsome Therapeutics's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Axsome Therapeutics that you should be aware of.

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. 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.