David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Arcturus Therapeutics Holdings

How Much Debt Does Arcturus Therapeutics Holdings Carry?

As you can see below, Arcturus Therapeutics Holdings had US$62.8m of debt, at June 2022, which is about the same as the year before. You can click the chart for greater detail. But it also has US$283.5m in cash to offset that, meaning it has US$220.7m net cash.

A Look At Arcturus Therapeutics Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that Arcturus Therapeutics Holdings had liabilities of US$92.7m due within 12 months and liabilities of US$73.6m due beyond that. On the other hand, it had cash of US$283.5m and US$2.25m worth of receivables due within a year. So it can boast US$119.4m more liquid assets than total liabilities.

This surplus liquidity suggests that Arcturus Therapeutics Holdings' 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, Arcturus Therapeutics Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Arcturus Therapeutics Holdings 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.

Over 12 months, Arcturus Therapeutics Holdings reported revenue of US$41m, which is a gain of 366%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Arcturus Therapeutics Holdings?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Arcturus Therapeutics Holdings lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$150m and booked a US$165m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$220.7m. That kitty means the company can keep spending for growth for at least two years, at current rates. The good news for shareholders is that Arcturus Therapeutics Holdings 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. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Arcturus Therapeutics Holdings is showing 1 warning sign in our investment analysis , you should know about...

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.