ProQR Therapeutics (NASDAQ:PRQR) 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 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. Importantly, ProQR Therapeutics N.V. (NASDAQ:PRQR) does carry debt. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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

What Is ProQR Therapeutics's Debt?

The image below, which you can click on for greater detail, shows that at March 2021 ProQR Therapeutics had debt of €17.8m, up from €13.7m in one year. But on the other hand it also has €67.9m in cash, leading to a €50.0m net cash position.

How Healthy Is ProQR Therapeutics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ProQR Therapeutics had liabilities of €10.5m due within 12 months and liabilities of €31.9m due beyond that. On the other hand, it had cash of €67.9m and €454.0k worth of receivables due within a year. So it actually has €25.9m more liquid assets than total liabilities.

This surplus suggests that ProQR Therapeutics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. 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 ultimately the future profitability of the business will decide if ProQR 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.

Given its lack of meaningful operating revenue, ProQR Therapeutics shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is ProQR Therapeutics?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months ProQR Therapeutics lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of €45m and booked a €43m accounting loss. However, it has net cash of €50.0m, so it has a bit of time before it will need more capital. 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. 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. We've identified 4 warning signs with ProQR Therapeutics , and understanding them should be part of your investment process.

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. 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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