David Iben put it well when he said: “Volatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ When we think about how risky a business is, we always like to look at its use of debt because debt overload can lead to bankruptcy. We note that Heron Therapeutics, Inc. (NASDAQ: HRTX) has debt on its balance sheet. But should shareholders be concerned about its use of debt?
When Is Debt a Problem?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. If things really go wrong, lenders can take over the business. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. The first step in examining a company’s debt levels is to consider its cash flow and debt together.
Check out our latest review for Heron Therapeutics
How much debt does Heron Therapeutics have?
You can click on the graph below for historical figures, but it shows that as of June 2021, Heron Therapeutics had a debt of US $ 149.0 million, an increase from US $ 6.27 million. , over one year. But it also has $ 257.7 million in cash to make up for that, which means it has $ 108.7 million in net cash.
A look at the responsibilities of Heron Therapeutics
Zooming in on the latest balance sheet data, we can see that Heron Therapeutics had liabilities of US $ 82.1 million due within 12 months and liabilities of US $ 162.0 million due beyond. In return, he had $ 257.7 million in cash and $ 42.6 million in receivables due within 12 months. He can therefore avail himself of $ 56.2 million in liquid assets more than total Liabilities.
This short-term liquidity is a sign that Heron Therapeutics could probably pay off its debt easily, as its balance sheet is far from tight. In short, Heron Therapeutics has clean cash flow, so it’s fair to say that it doesn’t have a lot of debt! The balance sheet is clearly the area to focus on when analyzing debt. But it is future profits, more than anything, that will determine Heron Therapeutics’ ability to maintain a healthy balance sheet in the future. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Over 12 months, Heron Therapeutics recorded a loss in EBIT and saw sales fall to US $ 83 million, a decrease of 34%. It makes us nervous, to say the least.
So how risky is Heron Therapeutics?
Statistically speaking, businesses that lose money are riskier than those that earn it. And we note that Heron Therapeutics recorded a loss of earnings before interest and taxes (EBIT) over the past year. And during the same period, it recorded negative free cash outflows of US $ 204 million and a book loss of US $ 234 million. While this does make the business a bit risky, it’s important to remember that it has a net cash flow of $ 108.7 million. This means that he could continue to spend at his current rate for more than two years. Even if its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company does not produce regular free cash flow. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks lie on the balance sheet – far from it. For example, we discovered 3 warning signs for Heron Therapeutics which you should know before investing here.
At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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