Is Vera Therapeutics (NASDAQ:VERA) A Risky Investment?

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 Vera Therapeutics, Inc. (NASDAQ:VERA) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Vera Therapeutics

How Much Debt Does Vera Therapeutics Carry?

The image below, which you can click on for greater detail, shows that at June 2024 Vera Therapeutics had debt of US$50.3m, up from US$25.0m in one year. However, its balance sheet shows it holds US$384.4m in cash, so it actually has US$334.1m net cash.

How Healthy Is Vera Therapeutics' Balance Sheet?

The latest balance sheet data shows that Vera Therapeutics had liabilities of US$18.4m due within a year, and liabilities of US$51.0m falling due after that. Offsetting this, it had US$384.4m in cash and US$1.96m in receivables that were due within 12 months. So it can boast US$316.9m more liquid assets than total liabilities.

This short term liquidity is a sign that Vera Therapeutics could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Vera Therapeutics boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Vera 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.

Since Vera Therapeutics doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

So How Risky Is Vera Therapeutics?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Vera Therapeutics had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$107m of cash and made a loss of US$108m. But the saving grace is the US$334.1m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Vera Therapeutics you should be aware of, and 1 of them is concerning.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.