Arcus Biosciences (NYSE:RCUS) May Not Be Profitable But It Seems To Be Managing Its Debt Just Fine, Anyway

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Arcus Biosciences, Inc. (NYSE:RCUS) does use debt in its business. But should shareholders be worried about its use of debt?

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. 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. 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 Arcus Biosciences

How Much Debt Does Arcus Biosciences Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Arcus Biosciences had US$20.0m of debt, an increase on none, over one year. However, its balance sheet shows it holds US$969.0m in cash, so it actually has US$949.0m net cash.

A Look At Arcus Biosciences' Liabilities

We can see from the most recent balance sheet that Arcus Biosciences had liabilities of US$199.0m falling due within a year, and liabilities of US$352.0m due beyond that. On the other hand, it had cash of US$969.0m and US$33.0m worth of receivables due within a year. So it actually has US$451.0m more liquid assets than total liabilities.

This excess liquidity suggests that Arcus Biosciences is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Arcus Biosciences boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Arcus Biosciences's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Arcus Biosciences wasn't profitable at an EBIT level, but managed to grow its revenue by 104%, to US$247m. So there's no doubt that shareholders are cheering for growth

So How Risky Is Arcus Biosciences?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Arcus Biosciences had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$267m of cash and made a loss of US$249m. But the saving grace is the US$949.0m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Importantly, Arcus Biosciences's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. For instance, we've identified 2 warning signs for Arcus Biosciences that you should be aware of.

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.