Cue Biopharma (NASDAQ:CUE) May Not Be Profitable But It Seems To Be Managing Its Debt Just Fine, Anyway

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 note that Cue Biopharma, Inc. (NASDAQ:CUE) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Cue Biopharma

What Is Cue Biopharma's Debt?

The image below, which you can click on for greater detail, shows that at March 2022 Cue Biopharma had debt of US$9.86m, up from none in one year. However, it does have US$67.9m in cash offsetting this, leading to net cash of US$58.1m.

How Healthy Is Cue Biopharma's Balance Sheet?

We can see from the most recent balance sheet that Cue Biopharma had liabilities of US$11.4m falling due within a year, and liabilities of US$14.6m due beyond that. Offsetting this, it had US$67.9m in cash and US$6.05m in receivables that were due within 12 months. So it can boast US$47.9m more liquid assets than total liabilities.

This excess liquidity is a great indication that Cue Biopharma's balance sheet is almost as strong as Fort Knox. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Cue Biopharma has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Cue Biopharma'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 Cue Biopharma wasn't profitable at an EBIT level, but managed to grow its revenue by 278%, to US$14m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Cue Biopharma?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Cue Biopharma 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$39m and booked a US$46m accounting loss. However, it has net cash of US$58.1m, so it has a bit of time before it will need more capital. The good news for shareholders is that Cue Biopharma 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. 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. Case in point: We've spotted 3 warning signs for Cue Biopharma you should be aware of.

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.