Is UroGen Pharma (NASDAQ:URGN) Weighed On By Its Debt Load?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that UroGen Pharma Ltd. (NASDAQ:URGN) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for UroGen Pharma

What Is UroGen Pharma's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 UroGen Pharma had US$121.7m of debt, an increase on US$98.5m, over one year. However, it does have US$249.6m in cash offsetting this, leading to net cash of US$127.9m.

How Strong Is UroGen Pharma's Balance Sheet?

According to the last reported balance sheet, UroGen Pharma had liabilities of US$32.8m due within 12 months, and liabilities of US$243.6m due beyond 12 months. Offsetting this, it had US$249.6m in cash and US$22.8m in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to UroGen Pharma's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$472.2m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, UroGen Pharma also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 UroGen Pharma can strengthen its balance sheet over time. 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 UroGen Pharma wasn't profitable at an EBIT level, but managed to grow its revenue by 16%, to US$89m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is UroGen Pharma?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that UroGen Pharma had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$96m of cash and made a loss of US$115m. However, it has net cash of US$127.9m, so it has a bit of time before it will need more capital. 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 1 warning sign we've spotted with UroGen Pharma .

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.

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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.