Is Geron (NASDAQ:GERN) Using Too Much Debt?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Geron Corporation (NASDAQ:GERN) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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 step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Geron

How Much Debt Does Geron Carry?

As you can see below, at the end of June 2024, Geron had US$83.4m of debt, up from US$51.6m a year ago. Click the image for more detail. But it also has US$362.7m in cash to offset that, meaning it has US$279.3m net cash.

How Strong Is Geron's Balance Sheet?

The latest balance sheet data shows that Geron had liabilities of US$103.5m due within a year, and liabilities of US$39.2m falling due after that. On the other hand, it had cash of US$362.7m and US$3.13m worth of receivables due within a year. So it can boast US$223.2m more liquid assets than total liabilities.

This short term liquidity is a sign that Geron could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Geron boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Geron'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.

In the last year Geron wasn't profitable at an EBIT level, but managed to grow its revenue by 205%, to US$1.4m. That's virtually the hole-in-one of revenue growth!

So How Risky Is Geron?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Geron had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$209m and booked a US$220m accounting loss. But at least it has US$279.3m on the balance sheet to spend on growth, near-term. The good news for shareholders is that Geron has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. 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. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with Geron , 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.

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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.