Does G1 Therapeutics (NASDAQ:GTHX) Have A Healthy Balance Sheet?

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.' 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. Importantly, G1 Therapeutics, Inc. (NASDAQ:GTHX) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

See our latest analysis for G1 Therapeutics

What Is G1 Therapeutics's Debt?

The image below, which you can click on for greater detail, shows that G1 Therapeutics had debt of US$51.2m at the end of September 2023, a reduction from US$76.6m over a year. But on the other hand it also has US$94.4m in cash, leading to a US$43.1m net cash position.

A Look At G1 Therapeutics' Liabilities

The latest balance sheet data shows that G1 Therapeutics had liabilities of US$33.7m due within a year, and liabilities of US$56.4m falling due after that. On the other hand, it had cash of US$94.4m and US$9.27m worth of receivables due within a year. So it can boast US$13.5m more liquid assets than total liabilities.

This short term liquidity is a sign that G1 Therapeutics could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that G1 Therapeutics 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 G1 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.

Over 12 months, G1 Therapeutics reported revenue of US$78m, which is a gain of 66%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is G1 Therapeutics?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months G1 Therapeutics lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$56m of cash and made a loss of US$71m. However, it has net cash of US$43.1m, so it has a bit of time before it will need more capital. With very solid revenue growth in the last year, G1 Therapeutics may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger 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. For instance, we've identified 3 warning signs for G1 Therapeutics (1 doesn't sit too well with us) 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.