Despite Lacking Profits Precision BioSciences (NASDAQ:DTIL) Seems To Be On Top Of Its Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Precision BioSciences, Inc. (NASDAQ:DTIL) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Precision BioSciences

What Is Precision BioSciences's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2021 Precision BioSciences had US$2.48m of debt, an increase on none, over one year. But on the other hand it also has US$143.7m in cash, leading to a US$141.2m net cash position.

How Healthy Is Precision BioSciences' Balance Sheet?

We can see from the most recent balance sheet that Precision BioSciences had liabilities of US$36.0m falling due within a year, and liabilities of US$84.4m due beyond that. Offsetting this, it had US$143.7m in cash and US$488.0k in receivables that were due within 12 months. So it can boast US$23.8m more liquid assets than total liabilities.

This surplus suggests that Precision BioSciences is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Precision BioSciences has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Precision BioSciences'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, Precision BioSciences reported revenue of US$116m, which is a gain of 376%, 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 Precision BioSciences?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Precision BioSciences 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$17m and booked a US$31m accounting loss. But at least it has US$141.2m on the balance sheet to spend on growth, near-term. Importantly, Precision BioSciences'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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Precision BioSciences 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.