Does Regulus Therapeutics (NASDAQ:RGLS) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 note that Regulus Therapeutics Inc. (NASDAQ:RGLS) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

See our latest analysis for Regulus Therapeutics

What Is Regulus Therapeutics's Net Debt?

The image below, which you can click on for greater detail, shows that Regulus Therapeutics had debt of US$5.96m at the end of June 2021, a reduction from US$14.6m over a year. However, its balance sheet shows it holds US$41.4m in cash, so it actually has US$35.5m net cash.

A Look At Regulus Therapeutics' Liabilities

We can see from the most recent balance sheet that Regulus Therapeutics had liabilities of US$9.97m falling due within a year, and liabilities of US$2.72m due beyond that. On the other hand, it had cash of US$41.4m and US$194.0k worth of receivables due within a year. So it can boast US$28.9m more liquid assets than total liabilities.

This excess liquidity is a great indication that Regulus Therapeutics' balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Regulus Therapeutics boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Regulus Therapeutics'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, Regulus Therapeutics reported revenue of US$10m, which is a gain of 23,710%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is Regulus Therapeutics?

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 Regulus Therapeutics 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$12m and booked a US$15m accounting loss. However, it has net cash of US$35.5m, so it has a bit of time before it will need more capital. Importantly, Regulus Therapeutics's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. To that end, you should learn about the 4 warning signs we've spotted with Regulus Therapeutics (including 2 which can't be ignored) .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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.

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