Rhythm Pharmaceuticals (NASDAQ:RYTM) Has Debt But No Earnings; Should You Worry?

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 note that Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. 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, 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.

What Is Rhythm Pharmaceuticals's Debt?

As you can see below, Rhythm Pharmaceuticals had US$109.5m of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. But it also has US$314.5m in cash to offset that, meaning it has US$205.0m net cash.

How Healthy Is Rhythm Pharmaceuticals' Balance Sheet?

The latest balance sheet data shows that Rhythm Pharmaceuticals had liabilities of US$111.8m due within a year, and liabilities of US$111.8m falling due after that. On the other hand, it had cash of US$314.5m and US$17.8m worth of receivables due within a year. So it actually has US$108.7m more liquid assets than total liabilities.

This surplus suggests that Rhythm Pharmaceuticals has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Rhythm Pharmaceuticals 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 ultimately the future profitability of the business will decide if Rhythm Pharmaceuticals 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.

Check out our latest analysis for Rhythm Pharmaceuticals

In the last year Rhythm Pharmaceuticals wasn't profitable at an EBIT level, but managed to grow its revenue by 49%, to US$137m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Rhythm Pharmaceuticals?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Rhythm Pharmaceuticals had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$114m of cash and made a loss of US$174m. While this does make the company a bit risky, it's important to remember it has net cash of US$205.0m. That kitty means the company can keep spending for growth for at least two years, at current rates. Rhythm Pharmaceuticals's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Rhythm Pharmaceuticals's profit, revenue, and operating cashflow have changed over the last few years.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.