ProQR Therapeutics (NASDAQ:PRQR) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, ProQR Therapeutics N.V. (NASDAQ:PRQR) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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.

View our latest analysis for ProQR Therapeutics

How Much Debt Does ProQR Therapeutics Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 ProQR Therapeutics had €17.5m of debt, an increase on €10.8m, over one year. However, its balance sheet shows it holds €88.8m in cash, so it actually has €71.3m net cash.

How Healthy Is ProQR Therapeutics's Balance Sheet?

According to the last reported balance sheet, ProQR Therapeutics had liabilities of €10.8m due within 12 months, and liabilities of €31.3m due beyond 12 months. Offsetting this, it had €88.8m in cash and €552.0k in receivables that were due within 12 months. So it can boast €47.3m more liquid assets than total liabilities.

This excess liquidity suggests that ProQR Therapeutics is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, ProQR 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 ProQR Therapeutics can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Since ProQR Therapeutics doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

So How Risky Is ProQR Therapeutics?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that ProQR Therapeutics had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through €48m of cash and made a loss of €52m. But at least it has €71.3m on the balance sheet to spend on growth, near-term. 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. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for ProQR Therapeutics 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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