Is TG Therapeutics (NASDAQ:TGTX) Using Debt In A Risky Way?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We note that TG Therapeutics, Inc. (NASDAQ:TGTX) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for TG Therapeutics

What Is TG Therapeutics's Debt?

The image below, which you can click on for greater detail, shows that at December 2022 TG Therapeutics had debt of US$71.4m, up from US$68.1m in one year. However, it does have US$161.7m in cash offsetting this, leading to net cash of US$90.3m.

A Look At TG Therapeutics' Liabilities

The latest balance sheet data shows that TG Therapeutics had liabilities of US$53.2m due within a year, and liabilities of US$81.8m falling due after that. On the other hand, it had cash of US$161.7m and US$88.0k worth of receivables due within a year. So it can boast US$26.8m more liquid assets than total liabilities.

Having regard to TG Therapeutics' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$2.76b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, TG Therapeutics boasts net cash, so it's fair to say it does not have a heavy debt load! 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 TG 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, TG Therapeutics made a loss at the EBIT level, and saw its revenue drop to US$2.8m, which is a fall of 58%. That makes us nervous, to say the least.

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 the fact is that over the last twelve months TG Therapeutics lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$176m of cash and made a loss of US$198m. Given it only has net cash of US$90.3m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 4 warning signs for TG Therapeutics that you should be aware of.

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.

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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.