Is Liquidia (NASDAQ:LQDA) Weighed On By Its Debt Load?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 Liquidia Corporation (NASDAQ:LQDA) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Liquidia

What Is Liquidia's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Liquidia had debt of US$113.1m, up from US$44.7m in one year. But it also has US$204.4m in cash to offset that, meaning it has US$91.2m net cash.

How Healthy Is Liquidia's Balance Sheet?

We can see from the most recent balance sheet that Liquidia had liabilities of US$33.8m falling due within a year, and liabilities of US$108.5m due beyond that. On the other hand, it had cash of US$204.4m and US$4.20m worth of receivables due within a year. So it can boast US$66.2m more liquid assets than total liabilities.

This surplus suggests that Liquidia has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Liquidia has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Liquidia 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.

Over 12 months, Liquidia made a loss at the EBIT level, and saw its revenue drop to US$16m, which is a fall of 15%. We would much prefer see growth.

So How Risky Is Liquidia?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Liquidia lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$92m of cash and made a loss of US$119m. But at least it has US$91.2m on the balance sheet to spend on growth, near-term. 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. For riskier companies like Liquidia I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

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.