Pliant Therapeutics (NASDAQ:PLRX) Has Debt But No Earnings; Should You Worry?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Pliant Therapeutics, Inc. (NASDAQ:PLRX) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Pliant Therapeutics

How Much Debt Does Pliant Therapeutics Carry?

As you can see below, at the end of September 2024, Pliant Therapeutics had US$30.1m of debt, up from US$10.0m a year ago. Click the image for more detail. However, it does have US$404.5m in cash offsetting this, leading to net cash of US$374.4m.

How Strong Is Pliant Therapeutics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Pliant Therapeutics had liabilities of US$40.0m due within 12 months and liabilities of US$59.9m due beyond that. On the other hand, it had cash of US$404.5m and US$2.22m worth of receivables due within a year. So it can boast US$306.9m more liquid assets than total liabilities.

This surplus strongly suggests that Pliant Therapeutics has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Pliant Therapeutics 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 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.

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

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. Indeed, in that time it burnt through US$137m of cash and made a loss of US$202m. But the saving grace is the US$374.4m on the balance sheet. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. Case in point: We've spotted 2 warning signs for Pliant Therapeutics you should be aware of, and 1 of them is a bit unpleasant.

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.