Is Sarepta Therapeutics (NASDAQ:SRPT) Using Too Much 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.' 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. Importantly, Sarepta Therapeutics, Inc. (NASDAQ:SRPT) does carry debt. 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. 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 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?

The image below, which you can click on for greater detail, shows that at June 2023 Sarepta Therapeutics had debt of US$1.24b, up from US$1.10b in one year. But on the other hand it also has US$1.86b in cash, leading to a US$625.2m net cash position.

How Healthy Is Sarepta Therapeutics' Balance Sheet?

We can see from the most recent balance sheet that Sarepta Therapeutics had liabilities of US$498.7m falling due within a year, and liabilities of US$1.89b due beyond that. Offsetting this, it had US$1.86b in cash and US$267.2m in receivables that were due within 12 months. So its liabilities total US$256.6m more than the combination of its cash and short-term receivables.

Since publicly traded Sarepta Therapeutics shares are worth a total of US$9.56b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. 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. 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 Sarepta Therapeutics's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Sarepta Therapeutics reported revenue of US$1.0b, which is a gain of 20%, 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 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. And over the same period it saw negative free cash outflow of US$431m and booked a US$908m accounting loss. With only US$625.2m on the balance sheet, it would appear that its going to need to raise capital again 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. By investing before those profits, shareholders take on more risk in the hope of bigger 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. To that end, you should be aware of the 2 warning signs we've spotted with Sarepta Therapeutics .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.