Is Mirum Pharmaceuticals (NASDAQ:MIRM) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 can see that Mirum Pharmaceuticals, Inc. (NASDAQ:MIRM) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Mirum Pharmaceuticals

What Is Mirum Pharmaceuticals's Debt?

The chart below, which you can click on for greater detail, shows that Mirum Pharmaceuticals had US$307.2m in debt in June 2024; about the same as the year before. However, it also had US$278.4m in cash, and so its net debt is US$28.9m.

How Healthy Is Mirum Pharmaceuticals' Balance Sheet?

The latest balance sheet data shows that Mirum Pharmaceuticals had liabilities of US$112.3m due within a year, and liabilities of US$319.5m falling due after that. Offsetting these obligations, it had cash of US$278.4m as well as receivables valued at US$60.4m due within 12 months. So its liabilities total US$93.0m more than the combination of its cash and short-term receivables.

Of course, Mirum Pharmaceuticals has a market capitalization of US$1.93b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Carrying virtually no net debt, Mirum Pharmaceuticals has a very light debt load indeed. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Mirum Pharmaceuticals 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 Mirum Pharmaceuticals wasn't profitable at an EBIT level, but managed to grow its revenue by 128%, to US$264m. So its pretty obvious shareholders are hoping for more growth!

Caveat Emptor

Despite the top line growth, Mirum Pharmaceuticals still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$108m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$39m of cash over the last year. So suffice it to say we do consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Mirum Pharmaceuticals that you should be aware of before investing here.

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.