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. We can see that TG Therapeutics, Inc. (NASDAQ:TGTX) does use debt in its business. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.
What Is TG Therapeutics's Net Debt?
As you can see below, at the end of June 2022, TG Therapeutics had US$69.0m of debt, up from US$23.9m a year ago. Click the image for more detail. But on the other hand it also has US$195.7m in cash, leading to a US$126.7m net cash position.
How Healthy Is TG Therapeutics' Balance Sheet?
According to the last reported balance sheet, TG Therapeutics had liabilities of US$43.3m due within 12 months, and liabilities of US$79.3m due beyond 12 months. Offsetting this, it had US$195.7m in cash and US$88.0k in receivables that were due within 12 months. So it actually has US$73.2m more liquid assets than total liabilities.
This surplus suggests that TG Therapeutics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, TG 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 TG Therapeutics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, TG Therapeutics reported revenue of US$7.0m, which is a gain of 188%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!
So How Risky Is TG 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 TG 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$272m and booked a US$288m accounting loss. With only US$126.7m on the balance sheet, it would appear that its going to need to raise capital again soon. The good news for shareholders is that TG Therapeutics has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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 4 warning signs for TG Therapeutics (1 is concerning!) that you should be aware of before investing here.
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.
TG Therapeutics, Inc., a commercial stage biopharmaceutical company, focuses on the acquisition, development, and commercialization of novel treatments for B-cell malignancies and autoimmune diseases.
High growth potential and fair value.