Here's Why BeiGene (NASDAQ:BGNE) Can Manage Its Debt Despite Losing Money

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, BeiGene, Ltd. (NASDAQ:BGNE) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for BeiGene

What Is BeiGene's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 BeiGene had US$628.5m of debt, an increase on US$565.9m, over one year. But on the other hand it also has US$3.52b in cash, leading to a US$2.89b net cash position.

A Look At BeiGene's Liabilities

Zooming in on the latest balance sheet data, we can see that BeiGene had liabilities of US$1.41b due within 12 months and liabilities of US$525.1m due beyond that. Offsetting this, it had US$3.52b in cash and US$338.1m in receivables that were due within 12 months. So it can boast US$1.92b more liquid assets than total liabilities.

This surplus suggests that BeiGene has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, BeiGene 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 BeiGene'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 BeiGene wasn't profitable at an EBIT level, but managed to grow its revenue by 69%, to US$1.8b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is BeiGene?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months BeiGene lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$2.3b and booked a US$1.7b accounting loss. But the saving grace is the US$2.89b on the balance sheet. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, BeiGene may be on a path to profitability. 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. Case in point: We've spotted 2 warning signs for BeiGene 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.