Alto Neuroscience (NYSE:ANRO) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Alto Neuroscience, Inc. (NYSE:ANRO) does carry debt. But should shareholders be worried about its use of debt?

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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Alto Neuroscience

What Is Alto Neuroscience's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Alto Neuroscience had US$10.2m of debt, an increase on US$9.76m, over one year. However, it does have US$181.7m in cash offsetting this, leading to net cash of US$171.5m.

How Healthy Is Alto Neuroscience's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Alto Neuroscience had liabilities of US$14.0m due within 12 months and liabilities of US$12.5m due beyond that. On the other hand, it had cash of US$181.7m and US$8.0k worth of receivables due within a year. So it can boast US$155.2m more liquid assets than total liabilities.

This surplus liquidity suggests that Alto Neuroscience's 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, Alto Neuroscience 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 Alto Neuroscience 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.

It seems likely shareholders hope that Alto Neuroscience can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.

So How Risky Is Alto Neuroscience?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Alto Neuroscience had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$48m of cash and made a loss of US$57m. But the saving grace is the US$171.5m on the balance sheet. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for Alto Neuroscience you should be aware of, and 3 of them can't be ignored.

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.