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

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Sarepta Therapeutics, Inc. (NASDAQ:SRPT) makes use of debt. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Sarepta Therapeutics

What Is Sarepta Therapeutics's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2022 Sarepta Therapeutics had US$1.54b of debt, an increase on US$1.09b, over one year. However, its balance sheet shows it holds US$2.07b in cash, so it actually has US$529.7m net cash.

How Healthy Is Sarepta Therapeutics' Balance Sheet?

We can see from the most recent balance sheet that Sarepta Therapeutics had liabilities of US$602.9m falling due within a year, and liabilities of US$2.12b due beyond that. On the other hand, it had cash of US$2.07b and US$223.5m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$429.4m.

Of course, Sarepta Therapeutics has a titanic market capitalization of US$11.1b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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'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$876m, which is a gain of 36%, 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?

We have no doubt that loss making companies are, in general, riskier than profitable ones. 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$287m and booked a US$716m accounting loss. Given it only has net cash of US$529.7m, 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. Be aware that Sarepta Therapeutics is showing 1 warning sign in our investment analysis , you should know about...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.