Is Blueprint Medicines (NASDAQ:BPMC) Using Debt Sensibly?

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. We note that Blueprint Medicines Corporation (NASDAQ:BPMC) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View 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 as of March 2023 Blueprint Medicines had US$139.5m of debt, an increase on none, over one year. But it also has US$822.2m in cash to offset that, meaning it has US$682.6m net cash.

How Strong Is Blueprint Medicines' Balance Sheet?

According to the last reported balance sheet, Blueprint Medicines had liabilities of US$172.7m due within 12 months, and liabilities of US$633.4m due beyond 12 months. On the other hand, it had cash of US$822.2m and US$31.3m worth of receivables due within a year. So it can boast US$47.4m more liquid assets than total liabilities.

This state of affairs indicates that Blueprint Medicines' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$3.56b company is struggling for cash, we still think it's worth monitoring its balance sheet. 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 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.

In the last year Blueprint Medicines had a loss before interest and tax, and actually shrunk its revenue by 7.5%, to US$205m. That's not what we would hope to see.

So How Risky Is Blueprint Medicines?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Blueprint Medicines had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$503m of cash and made a loss of US$581m. However, it has net cash of US$682.6m, 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. 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 - Blueprint Medicines has 1 warning sign we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.