Stock Analysis

Is Liquidia (NASDAQ:LQDA) Using Too Much Debt?

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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Liquidia Corporation (NASDAQ:LQDA) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

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What Is Liquidia's Debt?

The image below, which you can click on for greater detail, shows that Liquidia had debt of US$10.3m at the end of June 2021, a reduction from US$13.1m over a year. But on the other hand it also has US$67.9m in cash, leading to a US$57.6m net cash position.

NasdaqCM:LQDA Debt to Equity History September 28th 2021

How Healthy Is Liquidia's Balance Sheet?

The latest balance sheet data shows that Liquidia had liabilities of US$6.97m due within a year, and liabilities of US$18.4m falling due after that. On the other hand, it had cash of US$67.9m and US$2.99m worth of receivables due within a year. So it actually has US$45.5m more liquid assets than total liabilities.

This excess liquidity suggests that Liquidia is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Liquidia boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Liquidia 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 Liquidia managed to produce its first revenue as a listed company, but given the lack of profit, shareholders will no doubt be hoping to see some strong increases.

So How Risky Is Liquidia?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Liquidia had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$47m and booked a US$47m accounting loss. Given it only has net cash of US$57.6m, the company may need to raise more capital if it doesn't reach break-even soon. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Liquidia you should know about.

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.

What are the risks and opportunities for Liquidia?

Liquidia Corporation, a biopharmaceutical company, develops, manufactures, and commercializes various products for unmet patient needs in the United States.

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  • Trading at 86.6% below our estimate of its fair value

  • Revenue is forecast to grow 46.55% per year


  • Shareholders have been diluted in the past year

  • Currently unprofitable and not forecast to become profitable over the next 3 years

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