Amicus Therapeutics (NASDAQ:FOLD) Is Carrying A Fair Bit Of 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.' 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. We note that Amicus Therapeutics, Inc. (NASDAQ:FOLD) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Amicus Therapeutics

How Much Debt Does Amicus Therapeutics Carry?

The chart below, which you can click on for greater detail, shows that Amicus Therapeutics had US$392.7m in debt in March 2023; about the same as the year before. However, because it has a cash reserve of US$267.1m, its net debt is less, at about US$125.5m.

A Look At Amicus Therapeutics' Liabilities

The latest balance sheet data shows that Amicus Therapeutics had liabilities of US$138.4m due within a year, and liabilities of US$459.6m falling due after that. Offsetting this, it had US$267.1m in cash and US$68.2m in receivables that were due within 12 months. So its liabilities total US$262.7m more than the combination of its cash and short-term receivables.

Given Amicus Therapeutics has a market capitalization of US$3.50b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. 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 Amicus Therapeutics'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.

In the last year Amicus Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 6.0%, to US$337m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Amicus Therapeutics produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$172m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$131m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Amicus Therapeutics insider transactions.

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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