Neurocrine Biosciences (NASDAQ:NBIX) Seems To Use Debt Rather Sparingly

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Neurocrine Biosciences, Inc. (NASDAQ:NBIX) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Neurocrine Biosciences

What Is Neurocrine Biosciences's Net Debt?

As you can see below, Neurocrine Biosciences had US$122.8m of debt at March 2024, down from US$169.5m a year prior. However, its balance sheet shows it holds US$1.21b in cash, so it actually has US$1.09b net cash.

How Strong Is Neurocrine Biosciences' Balance Sheet?

The latest balance sheet data shows that Neurocrine Biosciences had liabilities of US$712.9m due within a year, and liabilities of US$373.4m falling due after that. Offsetting this, it had US$1.21b in cash and US$450.7m in receivables that were due within 12 months. So it actually has US$575.0m more liquid assets than total liabilities.

This surplus suggests that Neurocrine Biosciences has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Neurocrine Biosciences boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, Neurocrine Biosciences grew its EBIT by 71% over the last twelve months, and that growth will make it easier to handle its debt. 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 Neurocrine Biosciences'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Neurocrine Biosciences has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Neurocrine Biosciences actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Neurocrine Biosciences has net cash of US$1.09b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$614m, being 103% of its EBIT. So is Neurocrine Biosciences's debt a risk? It doesn't seem so to us. 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 Neurocrine Biosciences that you should be aware of before investing here.

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.

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