Ionis Pharmaceuticals (NASDAQ:IONS) Has Debt But No Earnings; Should You Worry?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) does carry debt. But should shareholders be worried about its use of debt?

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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Ionis Pharmaceuticals

What Is Ionis Pharmaceuticals's Net Debt?

The chart below, which you can click on for greater detail, shows that Ionis Pharmaceuticals had US$1.83b in debt in September 2024; about the same as the year before. However, its balance sheet shows it holds US$2.49b in cash, so it actually has US$664.6m net cash.

A Look At Ionis Pharmaceuticals' Liabilities

According to the last reported balance sheet, Ionis Pharmaceuticals had liabilities of US$304.6m due within 12 months, and liabilities of US$2.11b due beyond 12 months. Offsetting this, it had US$2.49b in cash and US$17.9m in receivables that were due within 12 months. So it actually has US$90.3m more liquid assets than total liabilities.

This state of affairs indicates that Ionis Pharmaceuticals' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$5.64b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Ionis Pharmaceuticals 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 Ionis Pharmaceuticals'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 Ionis Pharmaceuticals wasn't profitable at an EBIT level, but managed to grow its revenue by 31%, to US$803m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Ionis Pharmaceuticals?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Ionis Pharmaceuticals lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$374m of cash and made a loss of US$359m. But the saving grace is the US$664.6m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Ionis Pharmaceuticals's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. 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. To that end, you should be aware of the 2 warning signs we've spotted with Ionis Pharmaceuticals .

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.