Is Viridian Therapeutics (NASDAQ:VRDN) 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.' 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. We note that Viridian Therapeutics, Inc. (NASDAQ:VRDN) does have debt on its balance sheet. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Viridian Therapeutics

What Is Viridian Therapeutics's Debt?

As you can see below, at the end of December 2022, Viridian Therapeutics had US$4.65m of debt, up from none a year ago. Click the image for more detail. But on the other hand it also has US$424.6m in cash, leading to a US$419.9m net cash position.

How Healthy Is Viridian Therapeutics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Viridian Therapeutics had liabilities of US$33.3m due within 12 months and liabilities of US$6.68m due beyond that. On the other hand, it had cash of US$424.6m and US$102.0k worth of receivables due within a year. So it can boast US$384.6m more liquid assets than total liabilities.

This luscious liquidity implies that Viridian Therapeutics' balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Viridian Therapeutics has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Viridian Therapeutics 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.

Over 12 months, Viridian Therapeutics made a loss at the EBIT level, and saw its revenue drop to US$1.8m, which is a fall of 40%. That makes us nervous, to say the least.

So How Risky Is Viridian Therapeutics?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Viridian Therapeutics had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$95m of cash and made a loss of US$130m. But at least it has US$419.9m on the balance sheet to spend on growth, near-term. 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 3 warning signs we've spotted with Viridian Therapeutics (including 1 which is a bit unpleasant) .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.