Bicycle Therapeutics (NASDAQ:BCYC) May Not Be Profitable But It Seems To Be Managing Its Debt Just Fine, Anyway

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that Bicycle Therapeutics plc (NASDAQ:BCYC) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Bicycle Therapeutics

How Much Debt Does Bicycle Therapeutics Carry?

As you can see below, Bicycle Therapeutics had US$30.9m of debt, at June 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$961.4m in cash, leading to a US$930.5m net cash position.

How Strong Is Bicycle Therapeutics' Balance Sheet?

We can see from the most recent balance sheet that Bicycle Therapeutics had liabilities of US$69.6m falling due within a year, and liabilities of US$113.9m due beyond that. On the other hand, it had cash of US$961.4m and US$46.7m worth of receivables due within a year. So it actually has US$824.5m more liquid assets than total liabilities.

This excess liquidity is a great indication that Bicycle Therapeutics' balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Bicycle Therapeutics boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. 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're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Bicycle Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 76%, to US$40m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Bicycle Therapeutics?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Bicycle Therapeutics had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$165m of cash and made a loss of US$165m. While this does make the company a bit risky, it's important to remember it has net cash of US$930.5m. That means it could keep spending at its current rate for more than two years. Bicycle 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 analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for Bicycle Therapeutics (1 shouldn't be ignored) you should be aware of.

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.

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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.