Gossamer Bio (NASDAQ:GOSS) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Gossamer Bio, Inc. (NASDAQ:GOSS) makes use of debt. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Gossamer Bio

What Is Gossamer Bio's Debt?

As you can see below, Gossamer Bio had US$177.4m of debt, at September 2021, which is about the same as the year before. You can click the chart for greater detail. But it also has US$366.0m in cash to offset that, meaning it has US$188.7m net cash.

How Healthy Is Gossamer Bio's Balance Sheet?

We can see from the most recent balance sheet that Gossamer Bio had liabilities of US$35.9m falling due within a year, and liabilities of US$181.3m due beyond that. On the other hand, it had cash of US$366.0m and US$200.0k worth of receivables due within a year. So it actually has US$149.0m more liquid assets than total liabilities.

It's good to see that Gossamer Bio 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 Gossamer Bio 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 it is future earnings, more than anything, that will determine Gossamer Bio'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.

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

So How Risky Is Gossamer Bio?

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 Gossamer Bio had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$192m of cash and made a loss of US$242m. However, it has net cash of US$188.7m, so it has a bit of time before it will need more capital. 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. 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. For example, we've discovered 5 warning signs for Gossamer Bio (1 is concerning!) that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.