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.' 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. As with many other companies Viridian Therapeutics, Inc. (NASDAQ:VRDN) makes use of debt. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Viridian Therapeutics's Debt?
The chart below, which you can click on for greater detail, shows that Viridian Therapeutics had US$4.71m in debt in June 2023; about the same as the year before. However, it does have US$334.3m in cash offsetting this, leading to net cash of US$329.6m.
How Strong Is Viridian Therapeutics' Balance Sheet?
The latest balance sheet data shows that Viridian Therapeutics had liabilities of US$28.7m due within a year, and liabilities of US$6.95m falling due after that. On the other hand, it had cash of US$334.3m and US$102.0k worth of receivables due within a year. So it can boast US$298.8m more liquid assets than total liabilities.
This surplus liquidity suggests that Viridian Therapeutics' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Viridian 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 Viridian 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 Viridian Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 64%, to US$1.5m. With any luck the company will be able to grow its way to profitability.
So How Risky Is Viridian Therapeutics?
Statistically speaking companies that lose money are riskier than those that make money. And in the last year Viridian 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$163m and booked a US$198m accounting loss. But at least it has US$329.6m on the balance sheet to spend on growth, near-term. Viridian Therapeutics's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. Case in point: We've spotted 3 warning signs for Viridian Therapeutics you should be aware of.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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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.