Is Rigel Pharmaceuticals (NASDAQ:RIGL) A Risky Investment?

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. As with many other companies Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) makes use of debt. 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. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Rigel Pharmaceuticals

How Much Debt Does Rigel Pharmaceuticals Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2021 Rigel Pharmaceuticals had US$80.6m of debt, an increase on US$19.8m, over one year. However, its balance sheet shows it holds US$125.0m in cash, so it actually has US$44.4m net cash.

How Healthy Is Rigel Pharmaceuticals' Balance Sheet?

We can see from the most recent balance sheet that Rigel Pharmaceuticals had liabilities of US$63.6m falling due within a year, and liabilities of US$73.4m due beyond that. On the other hand, it had cash of US$125.0m and US$15.5m worth of receivables due within a year. So it can boast US$3.49m more liquid assets than total liabilities.

Having regard to Rigel Pharmaceuticals' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$473.0m company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Rigel Pharmaceuticals 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 it is future earnings, more than anything, that will determine Rigel Pharmaceuticals'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, Rigel Pharmaceuticals reported revenue of US$139m, which is a gain of 28%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Rigel Pharmaceuticals?

Although Rigel Pharmaceuticals had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$5.3m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Keeping in mind its 28% revenue growth over the last year, we think there's a decent chance the company is on track. We'd see further strong growth as an optimistic indication. 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. Case in point: We've spotted 1 warning sign for Rigel Pharmaceuticals you should be aware of.

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.