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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Spruce Biosciences, Inc. (NASDAQ:SPRB) makes use of debt. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
How Much Debt Does Spruce Biosciences Carry?
As you can see below, Spruce Biosciences had US$3.34m of debt at December 2023, down from US$4.92m a year prior. But it also has US$96.3m in cash to offset that, meaning it has US$93.0m net cash.
How Healthy Is Spruce Biosciences' Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Spruce Biosciences had liabilities of US$24.5m due within 12 months and liabilities of US$2.97m due beyond that. On the other hand, it had cash of US$96.3m and US$15.0m worth of receivables due within a year. So it can boast US$83.9m more liquid assets than total liabilities.
This excess liquidity is a great indication that Spruce Biosciences' balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Spruce Biosciences 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 it is future earnings, more than anything, that will determine Spruce 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 Spruce Biosciences managed to produce its first revenue as a listed company, but given the lack of profit, shareholders will no doubt be hoping to see some strong increases.
So How Risky Is Spruce Biosciences?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Spruce Biosciences had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$34m of cash and made a loss of US$48m. While this does make the company a bit risky, it's important to remember it has net cash of US$93.0m. That means it could keep spending at its current rate for more than two years. 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. 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. Case in point: We've spotted 3 warning signs for Spruce Biosciences you should be aware of, and 1 of them is significant.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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ハワード・マークスが株価の変動を心配するよりも、永久的な損失の可能性について心配していることをいいました。そして、私が知っているあらゆる実践的な投資家が心配していることです。そのため、債務は破産に関係することがしばしばあるため、企業のリスクを評価する際に注目すべき非常に重要な要因です。他社同様、Spruce Biosciences, Inc. (NASDAQ:SPRB)も債務を利用しています。しかし、株主は債務の利用について心配する必要があるのでしょうか?