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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) makes use of debt. But the real question is whether this debt is making the company risky.
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.
Check out our latest analysis for Apellis Pharmaceuticals
You can click the graphic below for the historical numbers, but it shows that Apellis Pharmaceuticals had US$189.3m of debt in June 2022, down from US$386.5m, one year before. However, its balance sheet shows it holds US$852.8m in cash, so it actually has US$663.5m net cash.
According to the last reported balance sheet, Apellis Pharmaceuticals had liabilities of US$126.8m due within 12 months, and liabilities of US$541.3m due beyond 12 months. Offsetting this, it had US$852.8m in cash and US$27.5m in receivables that were due within 12 months. So it actually has US$212.2m more liquid assets than total liabilities.
This surplus suggests that Apellis Pharmaceuticals has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Apellis Pharmaceuticals has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Apellis Pharmaceuticals's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year Apellis Pharmaceuticals had a loss before interest and tax, and actually shrunk its revenue by 62%, to US$97m. That makes us nervous, to say the least.
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 Apellis Pharmaceuticals had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$501m and booked a US$638m accounting loss. But at least it has US$663.5m on the balance sheet to spend on growth, near-term. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. We've identified 2 warning signs with Apellis Pharmaceuticals , 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.
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Apellis Pharmaceuticals, Inc., a commercial-stage biopharmaceutical company, focuses on the discovery, development, and commercialization of therapeutic compounds through the inhibition of the complement system for autoimmune and inflammatory diseases.
High growth potential with adequate balance sheet.
Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.
Apellis Pharmaceuticals, Inc., a commercial-stage biopharmaceutical company, focuses on the discovery, development, and commercialization of therapeutic compounds through the inhibition of the complement system for autoimmune and inflammatory diseases.
High growth potential with adequate balance sheet.
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