Rock star Growth Puts Legend Biotech (NASDAQ:LEGN) In A Position To Use Debt

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.' 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. We can see that Legend Biotech Corporation (NASDAQ:LEGN) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Legend Biotech

How Much Debt Does Legend Biotech Carry?

As you can see below, at the end of March 2024, Legend Biotech had US$286.4m of debt, up from US$265.9m a year ago. Click the image for more detail. However, it does have US$1.30b in cash offsetting this, leading to net cash of US$1.02b.

How Healthy Is Legend Biotech's Balance Sheet?

According to the last reported balance sheet, Legend Biotech had liabilities of US$249.7m due within 12 months, and liabilities of US$361.4m due beyond 12 months. On the other hand, it had cash of US$1.30b and US$78.0m worth of receivables due within a year. So it actually has US$769.3m more liquid assets than total liabilities.

This surplus suggests that Legend Biotech has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Legend Biotech 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 ultimately the future profitability of the business will decide if Legend Biotech 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.

In the last year Legend Biotech wasn't profitable at an EBIT level, but managed to grow its revenue by 206%, to US$343m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Legend Biotech?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Legend Biotech had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$264m and booked a US$466m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$1.02b. That means it could keep spending at its current rate for more than two years. Importantly, Legend Biotech's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. For riskier companies like Legend Biotech I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.

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