Is Kura Oncology (NASDAQ:KURA) A Risky Investment?

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.' 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. As with many other companies Kura Oncology, Inc. (NASDAQ:KURA) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Kura Oncology

How Much Debt Does Kura Oncology Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 Kura Oncology had US$9.24m of debt, an increase on none, over one year. But it also has US$477.0m in cash to offset that, meaning it has US$467.7m net cash.

How Strong Is Kura Oncology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Kura Oncology had liabilities of US$23.9m due within 12 months and liabilities of US$11.2m due beyond that. On the other hand, it had cash of US$477.0m and US$3.70m worth of receivables due within a year. So it actually has US$445.6m more liquid assets than total liabilities.

This luscious liquidity implies that Kura Oncology's balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Kura Oncology boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Kura Oncology's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Since Kura Oncology doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

So How Risky Is Kura Oncology?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Kura Oncology had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$110m of cash and made a loss of US$140m. But the saving grace is the US$467.7m on the balance sheet. That means it could keep spending at its current rate for more than two years. 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. To that end, you should learn about the 3 warning signs we've spotted with Kura Oncology (including 1 which can't be ignored) .

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.