Bicycle Therapeutics (NASDAQ:BCYC) Has Debt But No Earnings; Should You Worry?

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. As with many other companies Bicycle Therapeutics plc (NASDAQ:BCYC) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Bicycle Therapeutics

What Is Bicycle Therapeutics's Debt?

As you can see below, at the end of September 2021, Bicycle Therapeutics had US$29.8m of debt, up from US$14.4m a year ago. Click the image for more detail. However, its balance sheet shows it holds US$259.5m in cash, so it actually has US$229.8m net cash.

A Look At Bicycle Therapeutics' Liabilities

Zooming in on the latest balance sheet data, we can see that Bicycle Therapeutics had liabilities of US$30.2m due within 12 months and liabilities of US$80.3m due beyond that. On the other hand, it had cash of US$259.5m and US$7.70m worth of receivables due within a year. So it actually has US$156.7m more liquid assets than total liabilities.

This surplus suggests that Bicycle Therapeutics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Bicycle Therapeutics 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 Bicycle Therapeutics'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 Bicycle Therapeutics's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

So How Risky Is Bicycle Therapeutics?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Bicycle Therapeutics had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$22m and booked a US$66m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$229.8m. That means it could keep spending at its current rate for more than two years. 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. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Bicycle Therapeutics (of which 1 doesn't sit too well with us!) you should know about.

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.

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.

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