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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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 examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for BioCryst Pharmaceuticals

What Is BioCryst Pharmaceuticals's Net Debt?

As you can see below, BioCryst Pharmaceuticals had US$80.6m of debt, at June 2020, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$189.4m in cash, leading to a US$108.9m net cash position.

How Healthy Is BioCryst Pharmaceuticals's Balance Sheet?

We can see from the most recent balance sheet that BioCryst Pharmaceuticals had liabilities of US$102.7m falling due within a year, and liabilities of US$35.5m due beyond that. Offsetting these obligations, it had cash of US$189.4m as well as receivables valued at US$4.00m due within 12 months. So it actually has US$55.2m more liquid assets than total liabilities.

This short term liquidity is a sign that BioCryst Pharmaceuticals could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, BioCryst Pharmaceuticals 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 ultimately the future profitability of the business will decide if BioCryst Pharmaceuticals can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, BioCryst Pharmaceuticals reported revenue of US$49m, which is a gain of 327%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is BioCryst Pharmaceuticals?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months BioCryst Pharmaceuticals lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$93m and booked a US$116m accounting loss. However, it has net cash of US$108.9m, so it has a bit of time before it will need more capital. The good news for shareholders is that BioCryst Pharmaceuticals has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with BioCryst Pharmaceuticals (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.