We Think Ultragenyx Pharmaceutical (NASDAQ:RARE) Has A Fair Chunk Of Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. We can see that Ultragenyx Pharmaceutical Inc. (NASDAQ:RARE) does use debt in its business. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Ultragenyx Pharmaceutical

How Much Debt Does Ultragenyx Pharmaceutical Carry?

As you can see below, Ultragenyx Pharmaceutical had US$889.1m of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. However, it also had US$763.8m in cash, and so its net debt is US$125.3m.

A Look At Ultragenyx Pharmaceutical's Liabilities

According to the last reported balance sheet, Ultragenyx Pharmaceutical had liabilities of US$272.9m due within 12 months, and liabilities of US$913.2m due beyond 12 months. Offsetting these obligations, it had cash of US$763.8m as well as receivables valued at US$108.3m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$313.9m.

Given Ultragenyx Pharmaceutical has a market capitalization of US$5.23b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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 Ultragenyx Pharmaceutical'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.

In the last year Ultragenyx Pharmaceutical wasn't profitable at an EBIT level, but managed to grow its revenue by 19%, to US$481m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Ultragenyx Pharmaceutical had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable US$549m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$492m of cash over the last year. So in short it's a really risky stock. 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. For instance, we've identified 3 warning signs for Ultragenyx Pharmaceutical that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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.