Is Global Blood Therapeutics (NASDAQ:GBT) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, Global Blood Therapeutics, Inc. (NASDAQ:GBT) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Global Blood Therapeutics

How Much Debt Does Global Blood Therapeutics Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Global Blood Therapeutics had US$148.8m of debt, an increase on US$73.6m, over one year. But it also has US$560.9m in cash to offset that, meaning it has US$412.1m net cash.

How Healthy Is Global Blood Therapeutics' Balance Sheet?

We can see from the most recent balance sheet that Global Blood Therapeutics had liabilities of US$79.0m falling due within a year, and liabilities of US$228.8m due beyond that. On the other hand, it had cash of US$560.9m and US$17.5m worth of receivables due within a year. So it actually has US$270.5m 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. Succinctly put, Global Blood Therapeutics boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Global Blood Therapeutics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Global Blood Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 5,370%, to US$124m. 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 in the last year Global Blood Therapeutics had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$221m of cash and made a loss of US$248m. However, it has net cash of US$412.1m, 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. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Global Blood Therapeutics that you should be aware of before investing here.

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. 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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