Rock star Growth Puts Eiger BioPharmaceuticals (NASDAQ:EIGR) In A Position To Use Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Eiger BioPharmaceuticals

What Is Eiger BioPharmaceuticals's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 Eiger BioPharmaceuticals had US$38.9m of debt, an increase on US$31.4m, over one year. But on the other hand it also has US$141.8m in cash, leading to a US$102.9m net cash position.

How Strong Is Eiger BioPharmaceuticals' Balance Sheet?

We can see from the most recent balance sheet that Eiger BioPharmaceuticals had liabilities of US$21.8m falling due within a year, and liabilities of US$38.9m due beyond that. Offsetting this, it had US$141.8m in cash and US$1.04m in receivables that were due within 12 months. So it can boast US$82.1m more liquid assets than total liabilities.

It's good to see that Eiger BioPharmaceuticals has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Eiger BioPharmaceuticals has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Eiger BioPharmaceuticals 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.

In the last year Eiger BioPharmaceuticals wasn't profitable at an EBIT level, but managed to grow its revenue by 129%, to US$13m. So there's no doubt that shareholders are cheering for growth

So How Risky Is Eiger BioPharmaceuticals?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Eiger BioPharmaceuticals lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$76m and booked a US$89m accounting loss. However, it has net cash of US$102.9m, so it has a bit of time before it will need more capital. Importantly, Eiger BioPharmaceuticals's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. To that end, you should be aware of the 2 warning signs we've spotted with Eiger BioPharmaceuticals .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.