Is Rani Therapeutics Holdings (NASDAQ:RANI) Weighed On By Its Debt Load?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Rani Therapeutics Holdings, Inc. (NASDAQ:RANI) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Rani Therapeutics Holdings

How Much Debt Does Rani Therapeutics Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Rani Therapeutics Holdings had US$29.3m of debt, an increase on US$14.1m, over one year. But it also has US$60.5m in cash to offset that, meaning it has US$31.2m net cash.

How Healthy Is Rani Therapeutics Holdings' Balance Sheet?

The latest balance sheet data shows that Rani Therapeutics Holdings had liabilities of US$7.35m due within a year, and liabilities of US$28.3m falling due after that. On the other hand, it had cash of US$60.5m and US$200.0k worth of receivables due within a year. So it actually has US$25.1m more liquid assets than total liabilities.

This surplus suggests that Rani Therapeutics Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Rani Therapeutics Holdings 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 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?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Rani Therapeutics Holdings had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$55m and booked a US$36m accounting loss. However, it has net cash of US$31.2m, so it has a bit of time before it will need more capital. 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. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example Rani Therapeutics Holdings has 3 warning signs (and 2 which are potentially serious) we think you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.