Is Blueprint Medicines (NASDAQ:BPMC) Using Debt In A Risky Way?

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. We can see that Blueprint Medicines Corporation (NASDAQ:BPMC) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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 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. 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 Debt?

You can click the graphic below for the historical numbers, but it shows that Blueprint Medicines had US$647.8m of debt in September 2024, down from US$678.5m, one year before. But on the other hand it also has US$734.2m in cash, leading to a US$86.4m net cash position.

A Look At Blueprint Medicines' Liabilities

According to the last reported balance sheet, Blueprint Medicines had liabilities of US$257.7m due within 12 months, and liabilities of US$628.8m due beyond 12 months. Offsetting these obligations, it had cash of US$734.2m as well as receivables valued at US$65.8m due within 12 months. So its liabilities total US$86.5m more than the combination of its cash and short-term receivables.

Having regard to Blueprint Medicines' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$5.98b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Blueprint Medicines reported revenue of US$434m, which is a gain of 101%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for 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$251m of cash and made a loss of US$128m. But the saving grace is the US$86.4m on the balance sheet. That means it could keep spending at its current rate for more than two years. The good news for shareholders is that Blueprint Medicines has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. 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. For instance, we've identified 1 warning sign for Blueprint Medicines that you should be aware of.

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.