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 note that Blueprint Medicines Corporation (NASDAQ:BPMC) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.
What Is Blueprint Medicines's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of December 2023 Blueprint Medicines had US$680.4m of debt, an increase on US$569.4m, over one year. But it also has US$710.6m in cash to offset that, meaning it has US$30.2m net cash.
A Look At Blueprint Medicines' Liabilities
The latest balance sheet data shows that Blueprint Medicines had liabilities of US$214.9m due within a year, and liabilities of US$703.7m falling due after that. On the other hand, it had cash of US$710.6m and US$43.2m worth of receivables due within a year. So it has liabilities totalling US$164.8m more than its cash and near-term receivables, combined.
Since publicly traded Blueprint Medicines shares are worth a total of US$5.56b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Blueprint Medicines also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 Blueprint Medicines'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 Blueprint Medicines wasn't profitable at an EBIT level, but managed to grow its revenue by 22%, to US$249m. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is Blueprint Medicines?
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 Blueprint Medicines had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$453m of cash and made a loss of US$507m. But at least it has US$30.2m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, Blueprint Medicines may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for Blueprint Medicines that you should be aware of before investing here.
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.