Is Bicycle Therapeutics (NASDAQ:BCYC) Using Debt In A Risky Way?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Bicycle Therapeutics plc (NASDAQ:BCYC) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Bicycle Therapeutics

What Is Bicycle Therapeutics's Net Debt?

The chart below, which you can click on for greater detail, shows that Bicycle Therapeutics had US$30.3m in debt in December 2022; about the same as the year before. However, it does have US$339.2m in cash offsetting this, leading to net cash of US$308.8m.

A Look At Bicycle Therapeutics' Liabilities

Zooming in on the latest balance sheet data, we can see that Bicycle Therapeutics had liabilities of US$53.3m due within 12 months and liabilities of US$86.5m due beyond that. Offsetting this, it had US$339.2m in cash and US$21.2m in receivables that were due within 12 months. So it can boast US$220.5m more liquid assets than total liabilities.

This luscious liquidity implies that Bicycle Therapeutics' balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Bicycle Therapeutics has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Bicycle 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.

Over 12 months, Bicycle Therapeutics reported revenue of US$14m, which is a gain of 24%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Bicycle Therapeutics?

Statistically speaking companies that lose money are riskier than those that make money. 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$105m of cash and made a loss of US$113m. But the saving grace is the US$308.8m on the balance sheet. 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. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Bicycle Therapeutics has 2 warning signs (and 1 which is potentially serious) we think you should know about.

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.