Is Axsome Therapeutics (NASDAQ:AXSM) A Risky Investment?

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. We note that Axsome Therapeutics, Inc. (NASDAQ:AXSM) does have debt on its balance sheet. But is this debt a concern to shareholders?

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Axsome Therapeutics Carry?

As you can see below, Axsome Therapeutics had US$180.7m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$315.4m in cash, leading to a US$134.6m net cash position.

How Strong Is Axsome Therapeutics' Balance Sheet?

The latest balance sheet data shows that Axsome Therapeutics had liabilities of US$230.1m due within a year, and liabilities of US$281.4m falling due after that. On the other hand, it had cash of US$315.4m and US$142.0m worth of receivables due within a year. So it has liabilities totalling US$54.1m 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. Despite its noteworthy liabilities, Axsome Therapeutics 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 ultimately the future profitability of the business will decide if Axsome Therapeutics can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

View our latest analysis for Axsome Therapeutics

In the last year Axsome Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 43%, to US$386m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Axsome Therapeutics?

Statistically speaking companies that lose money are riskier than those that make money. 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$129m of cash and made a loss of US$287m. But at least it has US$134.6m 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. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Axsome Therapeutics's profit, revenue, and operating cashflow have changed over the last few years.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.