Global Blood Therapeutics (NASDAQ:GBT) May Not Be Profitable But It Seems To Be Managing Its Debt Just Fine, Anyway

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 Global Blood Therapeutics

How Much Debt Does Global Blood Therapeutics Carry?

As you can see below, at the end of March 2021, Global Blood Therapeutics had US$149.1m of debt, up from US$73.7m a year ago. Click the image for more detail. But it also has US$482.0m in cash to offset that, meaning it has US$333.0m net cash.

A Look At Global Blood Therapeutics' Liabilities

According to the last reported balance sheet, Global Blood Therapeutics had liabilities of US$59.0m due within 12 months, and liabilities of US$227.7m due beyond 12 months. Offsetting these obligations, it had cash of US$482.0m as well as receivables valued at US$18.3m due within 12 months. So it actually has US$213.6m 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're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Global Blood Therapeutics reported revenue of US$149m, which is a gain of 817%, 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. And over the same period it saw negative free cash outflow of US$220m and booked a US$249m accounting loss. However, it has net cash of US$333.0m, so it has a bit of time before it will need more capital. Importantly, Global Blood Therapeutics's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Global Blood Therapeutics you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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