Is Pliant Therapeutics (NASDAQ:PLRX) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Pliant Therapeutics, Inc. (NASDAQ:PLRX) does use debt in its business. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. 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 step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Pliant Therapeutics

What Is Pliant Therapeutics's Net Debt?

As you can see below, at the end of June 2022, Pliant Therapeutics had US$9.87m of debt, up from none a year ago. Click the image for more detail. But it also has US$163.6m in cash to offset that, meaning it has US$153.7m net cash.

A Look At Pliant Therapeutics' Liabilities

We can see from the most recent balance sheet that Pliant Therapeutics had liabilities of US$22.6m falling due within a year, and liabilities of US$14.3m due beyond that. Offsetting these obligations, it had cash of US$163.6m as well as receivables valued at US$5.39m due within 12 months. So it can boast US$132.2m more liquid assets than total liabilities.

This surplus suggests that Pliant Therapeutics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Pliant Therapeutics 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 ultimately the future profitability of the business will decide if Pliant Therapeutics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Pliant Therapeutics made a loss at the EBIT level, and saw its revenue drop to US$9.8m, which is a fall of 26%. To be frank that doesn't bode well.

So How Risky Is Pliant Therapeutics?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Pliant Therapeutics 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$89m and booked a US$109m accounting loss. Given it only has net cash of US$153.7m, the company may need to raise more capital if it doesn't reach break-even soon. 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. 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 instance, we've identified 4 warning signs for Pliant Therapeutics (2 make us uncomfortable) you should be aware of.

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.