Is Travere Therapeutics (NASDAQ:TVTX) Weighed On By Its Debt Load?

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 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. As with many other companies Travere Therapeutics, Inc. (NASDAQ:TVTX) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. 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.

View our latest analysis for Travere Therapeutics

What Is Travere Therapeutics's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 Travere Therapeutics had US$374.3m of debt, an increase on US$218.1m, over one year. However, it does have US$603.4m in cash offsetting this, leading to net cash of US$229.1m.

A Look At Travere Therapeutics' Liabilities

Zooming in on the latest balance sheet data, we can see that Travere Therapeutics had liabilities of US$119.5m due within 12 months and liabilities of US$500.8m due beyond that. On the other hand, it had cash of US$603.4m and US$14.7m worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

Having regard to Travere Therapeutics' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$1.57b company is short on cash, but still worth keeping an eye on the balance sheet. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Travere Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 15%, to US$229m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Travere Therapeutics?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Travere Therapeutics had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$64m of cash and made a loss of US$202m. While this does make the company a bit risky, it's important to remember it has net cash of US$229.1m. 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Travere Therapeutics is showing 3 warning signs in our investment analysis , you should know about...

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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.