Does MeiraGTx Holdings (NASDAQ:MGTX) Have A Healthy Balance Sheet?

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.' 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. We note that MeiraGTx Holdings plc (NASDAQ:MGTX) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for MeiraGTx Holdings

What Is MeiraGTx Holdings's Debt?

As you can see below, at the end of June 2023, MeiraGTx Holdings had US$71.6m of debt, up from none a year ago. Click the image for more detail. However, it does have US$92.8m in cash offsetting this, leading to net cash of US$21.2m.

How Strong Is MeiraGTx Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that MeiraGTx Holdings had liabilities of US$71.8m due within 12 months and liabilities of US$114.9m due beyond that. Offsetting this, it had US$92.8m in cash and US$40.7m in receivables that were due within 12 months. So it has liabilities totalling US$53.2m more than its cash and near-term receivables, combined.

Of course, MeiraGTx Holdings has a market capitalization of US$326.8m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, MeiraGTx Holdings also has more cash than debt, so we're pretty confident 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 MeiraGTx Holdings 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.

Over 12 months, MeiraGTx Holdings made a loss at the EBIT level, and saw its revenue drop to US$6.4m, which is a fall of 86%. To be frank that doesn't bode well.

So How Risky Is MeiraGTx Holdings?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months MeiraGTx Holdings lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$135m and booked a US$125m accounting loss. However, it has net cash of US$21.2m, so it has a bit of time before it will need more capital. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for MeiraGTx Holdings (1 is potentially serious) you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.