Here's Why ProQR Therapeutics (NASDAQ:PRQR) Can Manage Its Debt Despite Losing Money

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We note that ProQR Therapeutics N.V. (NASDAQ:PRQR) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for ProQR Therapeutics

How Much Debt Does ProQR Therapeutics Carry?

The image below, which you can click on for greater detail, shows that at September 2021 ProQR Therapeutics had debt of €19.3m, up from €17.5m in one year. But it also has €156.1m in cash to offset that, meaning it has €136.8m net cash.

How Strong Is ProQR Therapeutics' Balance Sheet?

We can see from the most recent balance sheet that ProQR Therapeutics had liabilities of €34.7m falling due within a year, and liabilities of €32.6m due beyond that. Offsetting this, it had €156.1m in cash and €511.0k in receivables that were due within 12 months. So it actually has €89.3m more liquid assets than total liabilities.

This excess liquidity suggests that ProQR Therapeutics is taking a careful approach to debt. 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. When analysing debt levels, the balance sheet is the obvious place to start. 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.

In the last year ProQR Therapeutics managed to produce its first revenue as a listed company, but given the lack of profit, shareholders will no doubt be hoping to see some strong increases.

So How Risky Is ProQR Therapeutics?

Statistically speaking companies that lose money are riskier than those that make money. 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 €42m of cash and made a loss of €57m. But at least it has €136.8m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, ProQR Therapeutics may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for ProQR Therapeutics that you should be aware of before investing here.

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.

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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