Health Check: How Prudently Does Blueprint Medicines (NASDAQ:BPMC) Use Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Blueprint Medicines Corporation (NASDAQ:BPMC) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Blueprint Medicines

How Much Debt Does Blueprint Medicines Carry?

The image below, which you can click on for greater detail, shows that at December 2022 Blueprint Medicines had debt of US$139.1m, up from none in one year. But on the other hand it also has US$945.0m in cash, leading to a US$805.9m net cash position.

A Look At Blueprint Medicines' Liabilities

According to the last reported balance sheet, Blueprint Medicines had liabilities of US$183.2m due within 12 months, and liabilities of US$652.0m due beyond 12 months. Offsetting these obligations, it had cash of US$945.0m as well as receivables valued at US$36.9m due within 12 months. So it can boast US$146.7m 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! 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 Blueprint Medicines 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.

In the last year Blueprint Medicines wasn't profitable at an EBIT level, but managed to grow its revenue by 13%, to US$204m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Blueprint Medicines?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Blueprint Medicines had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$511m of cash and made a loss of US$558m. However, it has net cash of US$805.9m, so it has a bit of time before it will need more capital. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Blueprint Medicines is showing 2 warning signs in our investment analysis , you should know about...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.