Does uniQure (NASDAQ:QURE) Have A Healthy Balance Sheet?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, uniQure N.V. (NASDAQ:QURE) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for uniQure

How Much Debt Does uniQure Carry?

The image below, which you can click on for greater detail, shows that at September 2022 uniQure had debt of US$102.4m, up from US$71.5m in one year. But on the other hand it also has US$440.3m in cash, leading to a US$337.9m net cash position.

A Look At uniQure's Liabilities

According to the last reported balance sheet, uniQure had liabilities of US$64.0m due within 12 months, and liabilities of US$153.1m due beyond 12 months. On the other hand, it had cash of US$440.3m and US$3.60m worth of receivables due within a year. So it actually has US$226.9m more liquid assets than total liabilities.

This excess liquidity suggests that uniQure is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that uniQure has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine uniQure'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, uniQure made a loss at the EBIT level, and saw its revenue drop to US$61m, which is a fall of 88%. To be frank that doesn't bode well.

So How Risky Is uniQure?

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 uniQure lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$154m and booked a US$125m accounting loss. But the saving grace is the US$337.9m 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for uniQure you should be aware of.

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.