Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 LogicBio Therapeutics, Inc. (NASDAQ:LOGC) makes use of debt. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.
What Is LogicBio Therapeutics's Debt?
As you can see below, LogicBio Therapeutics had US$9.86m of debt, at June 2021, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$68.1m in cash offsetting this, leading to net cash of US$58.3m.
How Strong Is LogicBio Therapeutics' Balance Sheet?
We can see from the most recent balance sheet that LogicBio Therapeutics had liabilities of US$14.2m falling due within a year, and liabilities of US$18.9m due beyond that. On the other hand, it had cash of US$68.1m and US$77.0k worth of receivables due within a year. So it actually has US$35.1m more liquid assets than total liabilities.
This excess liquidity suggests that LogicBio Therapeutics is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, LogicBio Therapeutics 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 ultimately the future profitability of the business will decide if LogicBio Therapeutics can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year LogicBio Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 38%, to US$2.7m. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is LogicBio Therapeutics?
Statistically speaking companies that lose money are riskier than those that make money. And in the last year LogicBio Therapeutics 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$17m and booked a US$36m accounting loss. However, it has net cash of US$58.3m, so it has a bit of time before it will need more capital. With very solid revenue growth in the last year, LogicBio Therapeutics may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - LogicBio Therapeutics has 3 warning signs we think you should be aware of.
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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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.
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