Does Amicus Therapeutics (NASDAQ:FOLD) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. Importantly, Amicus Therapeutics, Inc. (NASDAQ:FOLD) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

View our latest analysis for Amicus Therapeutics

What Is Amicus Therapeutics's Net Debt?

The chart below, which you can click on for greater detail, shows that Amicus Therapeutics had US$392.0m in debt in December 2022; about the same as the year before. However, it also had US$293.6m in cash, and so its net debt is US$98.4m.

A Look At Amicus Therapeutics' Liabilities

Zooming in on the latest balance sheet data, we can see that Amicus Therapeutics had liabilities of US$139.0m due within 12 months and liabilities of US$462.1m due beyond that. Offsetting this, it had US$293.6m in cash and US$66.2m in receivables that were due within 12 months. So it has liabilities totalling US$241.3m more than its cash and near-term receivables, combined.

Since publicly traded Amicus Therapeutics shares are worth a total of US$3.12b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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 Amicus Therapeutics 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.

Over 12 months, Amicus Therapeutics reported revenue of US$329m, which is a gain of 7.8%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Amicus Therapeutics had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$204m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any 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$170m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. For riskier companies like Amicus Therapeutics I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

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.