Is Sarepta Therapeutics (NASDAQ:SRPT) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Sarepta Therapeutics, Inc. (NASDAQ:SRPT) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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. 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.

View our latest analysis for Sarepta Therapeutics

What Is Sarepta Therapeutics's Debt?

As you can see below, Sarepta Therapeutics had US$1.10b of debt, at June 2022, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$1.93b in cash offsetting this, leading to net cash of US$827.1m.

How Healthy Is Sarepta Therapeutics' Balance Sheet?

The latest balance sheet data shows that Sarepta Therapeutics had liabilities of US$545.6m due within a year, and liabilities of US$1.72b falling due after that. Offsetting this, it had US$1.93b in cash and US$230.3m in receivables that were due within 12 months. So its liabilities total US$112.1m more than the combination of its cash and short-term receivables.

Having regard to Sarepta Therapeutics' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$9.45b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Sarepta Therapeutics boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Sarepta Therapeutics 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.

In the last year Sarepta Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 39%, to US$835m. 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 in the last year Sarepta 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$348m and booked a US$507m accounting loss. Given it only has net cash of US$827.1m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Sarepta Therapeutics may be on a path to profitability. 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. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Sarepta Therapeutics 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.