Despite Lacking Profits Blueprint Medicines (NASDAQ:BPMC) Seems To Be On Top Of Its 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 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, Blueprint Medicines Corporation (NASDAQ:BPMC) does carry debt. But should shareholders be worried about its use of debt?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Blueprint Medicines

What Is Blueprint Medicines's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2022 Blueprint Medicines had US$138.4m of debt, an increase on none, over one year. But it also has US$1.14b in cash to offset that, meaning it has US$998.6m net cash.

A Look At Blueprint Medicines' Liabilities

We can see from the most recent balance sheet that Blueprint Medicines had liabilities of US$175.5m falling due within a year, and liabilities of US$642.6m due beyond that. Offsetting this, it had US$1.14b in cash and US$21.9m in receivables that were due within 12 months. So it actually has US$340.8m more liquid assets than total liabilities.

This surplus suggests that Blueprint Medicines has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Blueprint Medicines 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 Blueprint Medicines'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.

Over 12 months, Blueprint Medicines reported revenue of US$272m, which is a gain of 154%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is Blueprint Medicines?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Blueprint Medicines lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$404m of cash and made a loss of US$718m. But at least it has US$998.6m on the balance sheet to spend on growth, near-term. Importantly, Blueprint Medicines's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great 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. We've identified 2 warning signs with Blueprint Medicines , and understanding them should be part of your investment process.

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.