Does Viridian Therapeutics (NASDAQ:VRDN) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 Viridian Therapeutics, Inc. (NASDAQ:VRDN) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Viridian Therapeutics

What Is Viridian Therapeutics's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2022 Viridian Therapeutics had US$4.61m of debt, an increase on none, over one year. But on the other hand it also has US$431.3m in cash, leading to a US$426.7m net cash position.

A Look At Viridian Therapeutics' Liabilities

The latest balance sheet data shows that Viridian Therapeutics had liabilities of US$25.2m due within a year, and liabilities of US$6.36m falling due after that. Offsetting these obligations, it had cash of US$431.3m as well as receivables valued at US$398.0k due within 12 months. So it can boast US$400.1m more liquid assets than total liabilities.

This excess liquidity is a great indication that Viridian Therapeutics' balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Viridian 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 Viridian 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.

Over 12 months, Viridian Therapeutics made a loss at the EBIT level, and saw its revenue drop to US$1.9m, which is a fall of 33%. To be frank that doesn't bode well.

So How Risky Is Viridian Therapeutics?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Viridian Therapeutics had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$77m of cash and made a loss of US$113m. However, it has net cash of US$426.7m, so it has a bit of time before it will need more capital. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Viridian Therapeutics (of which 1 is significant!) you should know about.

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.

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.