Is MeiraGTx Holdings (NASDAQ:MGTX) Using Debt Sensibly?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that MeiraGTx Holdings plc (NASDAQ:MGTX) does use debt in its business. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does MeiraGTx Holdings Carry?

The chart below, which you can click on for greater detail, shows that MeiraGTx Holdings had US$73.2m in debt in December 2024; about the same as the year before. However, it does have US$103.7m in cash offsetting this, leading to net cash of US$30.4m.

How Healthy Is MeiraGTx Holdings' Balance Sheet?

We can see from the most recent balance sheet that MeiraGTx Holdings had liabilities of US$60.8m falling due within a year, and liabilities of US$141.1m due beyond that. On the other hand, it had cash of US$103.7m and US$10.6m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$87.6m.

Of course, MeiraGTx Holdings has a market capitalization of US$501.5m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, MeiraGTx Holdings 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 it is future earnings, more than anything, that will determine MeiraGTx Holdings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts .

View our latest analysis for MeiraGTx Holdings

Over 12 months, MeiraGTx Holdings reported revenue of US$33m, which is a gain of 137%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is MeiraGTx Holdings?

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 MeiraGTx Holdings lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$109m of cash and made a loss of US$148m. With only US$30.4m on the balance sheet, it would appear that its going to need to raise capital again soon. The good news for shareholders is that MeiraGTx Holdings has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. To that end, you should learn about the 3 warning signs we've spotted with MeiraGTx Holdings (including 1 which is a bit concerning) .

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.