Rock star Growth Puts BeiGene (NASDAQ:BGNE) In A Position To Use Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 BeiGene, Ltd. (NASDAQ:BGNE) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View 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 BeiGene had US$488.1m of debt in March 2023, down from US$609.0m, one year before. However, it does have US$3.87b in cash offsetting this, leading to net cash of US$3.38b.

How Strong Is BeiGene's Balance Sheet?

The latest balance sheet data shows that BeiGene had liabilities of US$1.25b due within a year, and liabilities of US$544.9m falling due after that. On the other hand, it had cash of US$3.87b and US$332.2m worth of receivables due within a year. So it can boast US$2.40b more liquid assets than total liabilities.

This short term liquidity is a sign that BeiGene could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, BeiGene 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 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.

Over 12 months, BeiGene reported revenue of US$1.6b, which is a gain of 78%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

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 we do note that BeiGene 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$2.3b and booked a US$1.9b accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$3.38b. 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. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for BeiGene that you should be aware of before investing here.

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.