These 4 Measures Indicate That uniQure (NASDAQ:QURE) Is Using Debt Safely

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, uniQure N.V. (NASDAQ:QURE) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

Check out our latest analysis for uniQure

What Is uniQure's Debt?

As you can see below, at the end of March 2022, uniQure had US$101.4m of debt, up from US$70.5m a year ago. Click the image for more detail. However, its balance sheet shows it holds US$524.9m in cash, so it actually has US$423.5m net cash.

How Healthy Is uniQure's Balance Sheet?

We can see from the most recent balance sheet that uniQure had liabilities of US$44.7m falling due within a year, and liabilities of US$166.4m due beyond that. On the other hand, it had cash of US$524.9m and US$38.6m worth of receivables due within a year. So it can boast US$352.4m more liquid assets than total liabilities.

This luscious liquidity implies that uniQure's balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that uniQure has more cash than debt is arguably a good indication that it can manage its debt safely.

Although uniQure made a loss at the EBIT level, last year, it was also good to see that it generated US$304m in EBIT over the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. uniQure may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last year, uniQure generated free cash flow amounting to a very robust 94% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that uniQure has net cash of US$423.5m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$286m, being 94% of its EBIT. So is uniQure's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 2 warning signs we've spotted with uniQure (including 1 which is potentially serious) .

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.