Is Geron (NASDAQ:GERN) Using Debt Sensibly?

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.' 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. As with many other companies Geron Corporation (NASDAQ:GERN) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Geron

How Much Debt Does Geron Carry?

As you can see below, Geron had US$51.4m of debt, at March 2023, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$380.7m in cash offsetting this, leading to net cash of US$329.3m.

A Look At Geron's Liabilities

Zooming in on the latest balance sheet data, we can see that Geron had liabilities of US$43.9m due within 12 months and liabilities of US$54.9m due beyond that. Offsetting this, it had US$380.7m in cash and US$1.60m in receivables that were due within 12 months. So it actually has US$283.5m more liquid assets than total liabilities.

It's good to see that Geron has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Geron has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Geron 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.

Given its lack of meaningful operating revenue, Geron shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is Geron?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Geron had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$141m of cash and made a loss of US$150m. But at least it has US$329.3m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. Case in point: We've spotted 2 warning signs for Geron you should be aware of, and 1 of them is concerning.

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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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.