Does Milestone Pharmaceuticals (NASDAQ:MIST) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 note that Milestone Pharmaceuticals Inc. (NASDAQ:MIST) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Milestone Pharmaceuticals

What Is Milestone Pharmaceuticals's Net Debt?

As you can see below, at the end of June 2024, Milestone Pharmaceuticals had US$51.5m of debt, up from US$48.1m a year ago. Click the image for more detail. But on the other hand it also has US$83.3m in cash, leading to a US$31.7m net cash position.

How Strong Is Milestone Pharmaceuticals' Balance Sheet?

The latest balance sheet data shows that Milestone Pharmaceuticals had liabilities of US$4.57m due within a year, and liabilities of US$52.7m falling due after that. Offsetting these obligations, it had cash of US$83.3m as well as receivables valued at US$2.01m due within 12 months. So it can boast US$28.0m more liquid assets than total liabilities.

It's good to see that Milestone Pharmaceuticals has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Milestone Pharmaceuticals 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 Milestone Pharmaceuticals'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.

It seems likely shareholders hope that Milestone Pharmaceuticals can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.

So How Risky Is Milestone Pharmaceuticals?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Milestone Pharmaceuticals had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$37m and booked a US$48m accounting loss. However, it has net cash of US$31.7m, so it has a bit of time before it will need more capital. 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. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Milestone Pharmaceuticals (of which 2 make us uncomfortable!) you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.