Does Fortress Biotech (NASDAQ:FBIO) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Fortress Biotech, Inc. (NASDAQ:FBIO) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Fortress Biotech

How Much Debt Does Fortress Biotech Carry?

You can click the graphic below for the historical numbers, but it shows that Fortress Biotech had US$73.7m of debt in March 2021, down from US$90.5m, one year before. But it also has US$289.9m in cash to offset that, meaning it has US$216.1m net cash.

How Healthy Is Fortress Biotech's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Fortress Biotech had liabilities of US$53.8m due within 12 months and liabilities of US$93.0m due beyond that. On the other hand, it had cash of US$289.9m and US$20.3m worth of receivables due within a year. So it actually has US$163.4m more liquid assets than total liabilities.

This surplus liquidity suggests that Fortress Biotech'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. Simply put, the fact that Fortress Biotech 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 Fortress Biotech'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.

In the last year Fortress Biotech wasn't profitable at an EBIT level, but managed to grow its revenue by 2.8%, to US$44m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Fortress Biotech?

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 Fortress Biotech lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$89m of cash and made a loss of US$43m. But at least it has US$216.1m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the 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. Be aware that Fortress Biotech is showing 3 warning signs in our investment analysis , you should know about...

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. 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.
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