Here's Why Cue Biopharma (NASDAQ:CUE) Can Manage Its Debt Despite Losing Money

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Cue Biopharma, Inc. (NASDAQ:CUE) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. 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 Cue Biopharma

How Much Debt Does Cue Biopharma Carry?

You can click the graphic below for the historical numbers, but it shows that Cue Biopharma had US$8.17m of debt in December 2023, down from US$10.00m, one year before. But it also has US$48.5m in cash to offset that, meaning it has US$40.3m net cash.

How Healthy Is Cue Biopharma's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Cue Biopharma had liabilities of US$17.1m due within 12 months and liabilities of US$7.36m due beyond that. On the other hand, it had cash of US$48.5m and US$1.70m worth of receivables due within a year. So it can boast US$25.8m 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. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Cue Biopharma 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 Cue Biopharma's ability to maintain a healthy balance sheet going forward. 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$5.5m, which is a gain of 341%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue 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 in the last year Cue Biopharma had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$40m and booked a US$51m accounting loss. However, it has net cash of US$40.3m, 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. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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 example - Cue Biopharma has 4 warning signs 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.