Despite Lacking Profits VYNE Therapeutics (NASDAQ:VYNE) Seems To Be On Top Of Its Debt

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, VYNE Therapeutics Inc. (NASDAQ:VYNE) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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.

See our latest analysis for VYNE Therapeutics

What Is VYNE Therapeutics's Debt?

The chart below, which you can click on for greater detail, shows that VYNE Therapeutics had US$33.3m in debt in March 2021; about the same as the year before. However, it does have US$119.5m in cash offsetting this, leading to net cash of US$86.3m.

How Strong Is VYNE Therapeutics' Balance Sheet?

According to the last reported balance sheet, VYNE Therapeutics had liabilities of US$21.5m due within 12 months, and liabilities of US$34.7m due beyond 12 months. Offsetting this, it had US$119.5m in cash and US$10.8m in receivables that were due within 12 months. So it actually has US$74.0m more liquid assets than total liabilities.

This luscious liquidity implies that VYNE Therapeutics' balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that VYNE 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 it is future earnings, more than anything, that will determine VYNE 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 VYNE Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 1,139%, to US$23m. That's virtually the hole-in-one of revenue growth!

So How Risky Is VYNE Therapeutics?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year VYNE 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$97m and booked a US$236m accounting loss. With only US$86.3m on the balance sheet, it would appear that its going to need to raise capital again soon. The good news for shareholders is that VYNE Therapeutics has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for VYNE Therapeutics (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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