Health Check: How Prudently Does Alaunos Therapeutics (NASDAQ:TCRT) Use 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Alaunos Therapeutics, Inc. (NASDAQ:TCRT) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out the opportunities and risks within the US Biotechs industry.

What Is Alaunos Therapeutics's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2022 Alaunos Therapeutics had debt of US$24.5m, up from none in one year. But it also has US$60.0m in cash to offset that, meaning it has US$35.5m net cash.

A Look At Alaunos Therapeutics' Liabilities

We can see from the most recent balance sheet that Alaunos Therapeutics had liabilities of US$26.8m falling due within a year, and liabilities of US$6.98m due beyond that. Offsetting these obligations, it had cash of US$60.0m as well as receivables valued at US$1.11m due within 12 months. So it can boast US$27.4m more liquid assets than total liabilities.

This surplus suggests that Alaunos Therapeutics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Alaunos Therapeutics boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Alaunos 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.

Given its lack of meaningful operating revenue, Alaunos Therapeutics shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is Alaunos Therapeutics?

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 Alaunos Therapeutics had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$41m of cash and made a loss of US$54m. But the saving grace is the US$35.5m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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 5 warning signs for Alaunos Therapeutics you should be aware of, and 4 of them are a bit concerning.

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.

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.