Does Ionis Pharmaceuticals (NASDAQ:IONS) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) does have debt on its balance sheet. 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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Ionis Pharmaceuticals

What Is Ionis Pharmaceuticals's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Ionis Pharmaceuticals had US$1.23b of debt in September 2022, down from US$1.28b, one year before. However, it does have US$1.99b in cash offsetting this, leading to net cash of US$759.7m.

How Strong Is Ionis Pharmaceuticals' Balance Sheet?

According to the last reported balance sheet, Ionis Pharmaceuticals had liabilities of US$283.5m due within 12 months, and liabilities of US$1.54b due beyond 12 months. Offsetting these obligations, it had cash of US$1.99b as well as receivables valued at US$6.65m due within 12 months. So it can boast US$168.0m more liquid assets than total liabilities.

This surplus suggests that Ionis Pharmaceuticals has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Ionis Pharmaceuticals boasts net cash, so it's fair to say it does not have a heavy debt load!

Although Ionis Pharmaceuticals made a loss at the EBIT level, last year, it was also good to see that it generated US$21m in EBIT over the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Ionis Pharmaceuticals 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Ionis Pharmaceuticals has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, Ionis Pharmaceuticals actually produced more free cash flow than EBIT over the last year. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Ionis Pharmaceuticals has US$759.7m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$110m, being 535% of its EBIT. So we don't think Ionis Pharmaceuticals's use of debt is risky. 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 - Ionis Pharmaceuticals has 1 warning sign we think 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.

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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.