Despite Lacking Profits ProQR Therapeutics (NASDAQ:PRQR) Seems To Be On Top Of Its Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We can see that ProQR Therapeutics N.V. (NASDAQ:PRQR) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. 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.

Check out our latest analysis for ProQR Therapeutics

What Is ProQR Therapeutics's Net Debt?

As you can see below, ProQR Therapeutics had €6.66m of debt at September 2022, down from €19.3m a year prior. But it also has €100.4m in cash to offset that, meaning it has €93.8m net cash.

How Healthy Is ProQR Therapeutics' Balance Sheet?

The latest balance sheet data shows that ProQR Therapeutics had liabilities of €27.0m due within a year, and liabilities of €30.2m falling due after that. Offsetting these obligations, it had cash of €100.4m as well as receivables valued at €570.0k due within 12 months. So it actually has €43.8m more liquid assets than total liabilities.

This surplus suggests that ProQR Therapeutics is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that ProQR Therapeutics has more cash than debt is arguably a good indication that it can manage its debt safely. 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 ProQR Therapeutics'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, ProQR Therapeutics reported revenue of €3.9m, which is a gain of 79%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is ProQR Therapeutics?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year ProQR Therapeutics had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through €48m of cash and made a loss of €72m. However, it has net cash of €93.8m, so it has a bit of time before it will need more capital. With very solid revenue growth in the last year, ProQR Therapeutics may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for ProQR Therapeutics (1 is a bit unpleasant!) that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.