Is Marinus Pharmaceuticals (NASDAQ:MRNS) Weighed On By Its Debt Load?

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 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 Marinus Pharmaceuticals, Inc. (NASDAQ:MRNS) 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 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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out the opportunities and risks within the US Pharmaceuticals industry.

What Is Marinus Pharmaceuticals's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 Marinus Pharmaceuticals had US$70.4m of debt, an increase on US$11.0m, over one year. However, its balance sheet shows it holds US$92.3m in cash, so it actually has US$22.0m net cash.

How Strong Is Marinus Pharmaceuticals' Balance Sheet?

We can see from the most recent balance sheet that Marinus Pharmaceuticals had liabilities of US$23.1m falling due within a year, and liabilities of US$81.5m due beyond that. On the other hand, it had cash of US$92.3m and US$3.00m worth of receivables due within a year. So its liabilities total US$9.25m more than the combination of its cash and short-term receivables.

Of course, Marinus Pharmaceuticals has a market capitalization of US$232.1m, 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, Marinus Pharmaceuticals boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Marinus 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.

Over 12 months, Marinus Pharmaceuticals reported revenue of US$28m, which is a gain of 409%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is Marinus Pharmaceuticals?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Marinus 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$80m and booked a US$107m accounting loss. However, it has net cash of US$22.0m, so it has a bit of time before it will need more capital. Importantly, Marinus Pharmaceuticals's revenue growth is hot to trot. 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. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 2 warning signs for Marinus Pharmaceuticals you should be aware of, and 1 of them shouldn't be ignored.

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.