MeiraGTx Holdings (NASDAQ:MGTX) Has Debt But No Earnings; Should You Worry?

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.' 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. We note that MeiraGTx Holdings plc (NASDAQ:MGTX) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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

View our latest analysis for MeiraGTx Holdings

What Is MeiraGTx Holdings's Net Debt?

The chart below, which you can click on for greater detail, shows that MeiraGTx Holdings had US$72.4m in debt in March 2024; about the same as the year before. However, it does have US$119.2m in cash offsetting this, leading to net cash of US$46.8m.

How Strong Is MeiraGTx Holdings' Balance Sheet?

We can see from the most recent balance sheet that MeiraGTx Holdings had liabilities of US$47.5m falling due within a year, and liabilities of US$140.0m due beyond that. On the other hand, it had cash of US$119.2m and US$24.1m worth of receivables due within a year. So its liabilities total US$44.2m more than the combination of its cash and short-term receivables.

Given MeiraGTx Holdings has a market capitalization of US$282.3m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year MeiraGTx Holdings had a loss before interest and tax, and actually shrunk its revenue by 16%, to US$11m. That's not what we would hope to see.

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$118m and booked a US$74m accounting loss. But at least it has US$46.8m on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for MeiraGTx Holdings (1 is potentially serious!) that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com