Is Rani Therapeutics Holdings (NASDAQ:RANI) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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, Rani Therapeutics Holdings, Inc. (NASDAQ:RANI) 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 Rani Therapeutics Holdings

What Is Rani Therapeutics Holdings's Net Debt?

As you can see below, Rani Therapeutics Holdings had US$28.3m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$30.4m in cash, leading to a US$2.10m net cash position.

How Healthy Is Rani Therapeutics Holdings' Balance Sheet?

According to the last reported balance sheet, Rani Therapeutics Holdings had liabilities of US$20.2m due within 12 months, and liabilities of US$17.6m due beyond 12 months. On the other hand, it had cash of US$30.4m and US$100.0k worth of receivables due within a year. So it has liabilities totalling US$7.26m more than its cash and near-term receivables, combined.

Given Rani Therapeutics Holdings has a market capitalization of US$82.7m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Rani Therapeutics Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Rani Therapeutics Holdings 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.

Given it has no significant operating revenue at the moment, shareholders will be hoping Rani Therapeutics Holdings can make progress and gain better traction for the business, before it runs low on cash.

So How Risky Is Rani Therapeutics Holdings?

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 Rani Therapeutics Holdings lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$40m of cash and made a loss of US$28m. Given it only has net cash of US$2.10m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. For example, we've discovered 4 warning signs for Rani Therapeutics Holdings (2 are significant!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.