Is BeiGene (NASDAQ:ONC) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies BeiGene, Ltd. (NASDAQ:ONC) makes use of debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.

What Is BeiGene's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 BeiGene had US$1.02b of debt, an increase on US$886.0m, over one year. But it also has US$2.63b in cash to offset that, meaning it has US$1.61b net cash.

How Healthy Is BeiGene's Balance Sheet?

According to the last reported balance sheet, BeiGene had liabilities of US$2.21b due within 12 months, and liabilities of US$373.8m due beyond 12 months. Offsetting these obligations, it had cash of US$2.63b as well as receivables valued at US$709.1m due within 12 months. So it actually has US$747.8m more liquid assets than total liabilities.

This short term liquidity is a sign that BeiGene could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, BeiGene boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine BeiGene'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.

View our latest analysis for BeiGene

In the last year BeiGene wasn't profitable at an EBIT level, but managed to grow its revenue by 55%, to US$3.8b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is BeiGene?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that BeiGene had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$670m and booked a US$645m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$1.61b. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, BeiGene may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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 1 warning sign for BeiGene you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.