Despite Lacking Profits Cue Biopharma (NASDAQ:CUE) Seems To Be On Top Of Its Debt

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Cue Biopharma, Inc. (NASDAQ:CUE) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Cue Biopharma

What Is Cue Biopharma's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 Cue Biopharma had US$9.91m of debt, an increase on none, over one year. However, its balance sheet shows it holds US$66.1m in cash, so it actually has US$56.2m net cash.

A Look At Cue Biopharma's Liabilities

Zooming in on the latest balance sheet data, we can see that Cue Biopharma had liabilities of US$8.32m due within 12 months and liabilities of US$16.7m due beyond that. On the other hand, it had cash of US$66.1m and US$736.0k worth of receivables due within a year. So it can boast US$41.9m more liquid assets than total liabilities.

This surplus liquidity suggests that Cue Biopharma's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. 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 ultimately the future profitability of the business will decide if Cue Biopharma 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.

Over 12 months, Cue Biopharma reported revenue of US$12m, which is a gain of 113%, 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 Cue Biopharma?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Cue Biopharma lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$42m of cash and made a loss of US$49m. But at least it has US$56.2m on the balance sheet to spend on growth, near-term. Importantly, Cue Biopharma's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Cue Biopharma is showing 3 warning signs in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.