Despite Lacking Profits Global Blood Therapeutics (NASDAQ:GBT) Seems To Be On Top Of Its Debt

Warren Buffett famously said, '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. We note that Global Blood Therapeutics, Inc. (NASDAQ:GBT) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Global Blood Therapeutics

What Is Global Blood Therapeutics's Debt?

As you can see below, at the end of June 2021, Global Blood Therapeutics had US$149.3m of debt, up from US$73.8m a year ago. Click the image for more detail. However, it does have US$437.4m in cash offsetting this, leading to net cash of US$288.1m.

How Strong Is Global Blood Therapeutics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Global Blood Therapeutics had liabilities of US$72.7m due within 12 months and liabilities of US$226.5m due beyond that. Offsetting this, it had US$437.4m in cash and US$19.5m in receivables that were due within 12 months. So it actually has US$157.7m more liquid assets than total liabilities.

This short term liquidity is a sign that Global Blood Therapeutics could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Global Blood Therapeutics 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 it is future earnings, more than anything, that will determine Global Blood 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.

Over 12 months, Global Blood Therapeutics reported revenue of US$165m, which is a gain of 245%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Global Blood Therapeutics?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Global Blood Therapeutics lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$216m of cash and made a loss of US$266m. However, it has net cash of US$288.1m, so it has a bit of time before it will need more capital. Importantly, Global Blood Therapeutics's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with Global Blood Therapeutics , and understanding them should be part of your investment process.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.