Is Travere Therapeutics (NASDAQ:TVTX) A Risky Investment?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Travere Therapeutics, Inc. (NASDAQ:TVTX) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Travere Therapeutics

How Much Debt Does Travere Therapeutics Carry?

The chart below, which you can click on for greater detail, shows that Travere Therapeutics had US$376.0m in debt in March 2023; about the same as the year before. However, its balance sheet shows it holds US$561.5m in cash, so it actually has US$185.5m net cash.

How Strong Is Travere Therapeutics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Travere Therapeutics had liabilities of US$130.6m due within 12 months and liabilities of US$488.4m due beyond that. On the other hand, it had cash of US$561.5m and US$23.5m worth of receivables due within a year. So it has liabilities totalling US$34.0m more than its cash and near-term receivables, combined.

Given Travere Therapeutics has a market capitalization of US$1.24b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Travere 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 Travere 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, Travere Therapeutics made a loss at the EBIT level, and saw its revenue drop to US$221m, which is a fall of 3.5%. We would much prefer see growth.

So How Risky Is Travere Therapeutics?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Travere 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$263m and booked a US$289m accounting loss. But the saving grace is the US$185.5m on the balance sheet. That means it could keep spending at its current rate for more than two years. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 3 warning signs for Travere Therapeutics that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.