Health Check: How Prudently Does Enanta Pharmaceuticals (NASDAQ:ENTA) Use Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We note that Enanta Pharmaceuticals, Inc. (NASDAQ:ENTA) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is Enanta Pharmaceuticals's Debt?

As you can see below, Enanta Pharmaceuticals had US$143.2m of debt at September 2025, down from US$170.6m a year prior. However, it does have US$188.9m in cash offsetting this, leading to net cash of US$45.7m.

A Look At Enanta Pharmaceuticals' Liabilities

We can see from the most recent balance sheet that Enanta Pharmaceuticals had liabilities of US$48.6m falling due within a year, and liabilities of US$167.5m due beyond that. Offsetting these obligations, it had cash of US$188.9m as well as receivables valued at US$6.88m due within 12 months. So it has liabilities totalling US$20.3m more than its cash and near-term receivables, combined.

Given Enanta Pharmaceuticals has a market capitalization of US$394.3m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Enanta Pharmaceuticals also has more cash than debt, so we're pretty confident 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 Enanta Pharmaceuticals can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

See our latest analysis for Enanta Pharmaceuticals

In the last year Enanta Pharmaceuticals had a loss before interest and tax, and actually shrunk its revenue by 3.4%, to US$65m. We would much prefer see growth.

So How Risky Is Enanta Pharmaceuticals?

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 Enanta Pharmaceuticals lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$32m and booked a US$82m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$45.7m. That means it could keep spending at its current rate for more than two years. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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 Enanta Pharmaceuticals you should be aware of, and 2 of them make us uncomfortable.

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.