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

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Travere Therapeutics, Inc. (NASDAQ:TVTX) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Travere Therapeutics

What Is Travere Therapeutics's Debt?

As you can see below, at the end of June 2022, Travere Therapeutics had US$374.7m of debt, up from US$220.9m a year ago. Click the image for more detail. However, it does have US$553.2m in cash offsetting this, leading to net cash of US$178.5m.

How Healthy Is Travere Therapeutics' Balance Sheet?

The latest balance sheet data shows that Travere Therapeutics had liabilities of US$124.5m due within a year, and liabilities of US$498.3m falling due after that. Offsetting this, it had US$553.2m in cash and US$16.7m in receivables that were due within 12 months. So its liabilities total US$52.9m more than the combination of its cash and short-term receivables.

Of course, Travere Therapeutics has a market capitalization of US$1.67b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Travere 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 Travere 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.

In the last year Travere Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to US$228m. 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$114m of cash and made a loss of US$230m. But the saving grace is the US$178.5m 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. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 2 warning signs we've spotted with Travere Therapeutics .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.