Does Sarepta Therapeutics (NASDAQ:SRPT) Have A Healthy Balance Sheet?

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. Importantly, Sarepta Therapeutics, Inc. (NASDAQ:SRPT) does carry 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 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Sarepta Therapeutics

What Is Sarepta Therapeutics's Debt?

As you can see below, Sarepta Therapeutics had US$1.24b of debt at September 2023, down from US$1.54b a year prior. But on the other hand it also has US$1.73b in cash, leading to a US$496.8m net cash position.

How Strong Is Sarepta Therapeutics' Balance Sheet?

We can see from the most recent balance sheet that Sarepta Therapeutics had liabilities of US$450.7m falling due within a year, and liabilities of US$1.89b due beyond that. Offsetting this, it had US$1.73b in cash and US$354.3m in receivables that were due within 12 months. So it has liabilities totalling US$257.5m more than its cash and near-term receivables, combined.

Given Sarepta Therapeutics has a market capitalization of US$7.73b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Sarepta Therapeutics also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Sarepta 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, Sarepta Therapeutics reported revenue of US$1.1b, which is a gain of 26%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Sarepta Therapeutics?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Sarepta Therapeutics had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$512m of cash and made a loss of US$691m. Given it only has net cash of US$496.8m, the company may need to raise more capital if it doesn't reach break-even soon. Sarepta Therapeutics's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Sarepta Therapeutics that you should be aware of before investing here.

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.