Is Xencor (NASDAQ:XNCR) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 can see that Xencor, Inc. (NASDAQ:XNCR) does use debt in its business. But the real question is whether this debt is making the company risky.

We've discovered 2 warning signs about Xencor. View them for free.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 Xencor's Net Debt?

The image below, which you can click on for greater detail, shows that Xencor had debt of US$163.6m at the end of December 2024, a reduction from US$189.5m over a year. However, its balance sheet shows it holds US$497.8m in cash, so it actually has US$334.2m net cash.

How Strong Is Xencor's Balance Sheet?

The latest balance sheet data shows that Xencor had liabilities of US$87.4m due within a year, and liabilities of US$190.5m falling due after that. Offsetting these obligations, it had cash of US$497.8m as well as receivables valued at US$60.8m due within 12 months. So it actually has US$280.7m more liquid assets than total liabilities.

This luscious liquidity implies that Xencor's balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Xencor 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 Xencor 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.

View our latest analysis for Xencor

Over 12 months, Xencor made a loss at the EBIT level, and saw its revenue drop to US$110m, which is a fall of 37%. That makes us nervous, to say the least.

So How Risky Is Xencor?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Xencor 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$212m and booked a US$233m accounting loss. But at least it has US$334.2m 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. 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. Be aware that Xencor is showing 2 warning signs in our investment analysis , you should know about...

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.