The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 AnaptysBio, Inc. (NASDAQ:ANAB) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does AnaptysBio Carry?

The image below, which you can click on for greater detail, shows that at September 2024 AnaptysBio had debt of US$350.6m, up from US$311.3m in one year. However, it does have US$430.1m in cash offsetting this, leading to net cash of US$79.6m.

How Strong Is AnaptysBio's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that AnaptysBio had liabilities of US$43.9m due within 12 months and liabilities of US$365.2m due beyond that. On the other hand, it had cash of US$430.1m and US$12.2m worth of receivables due within a year. So it can boast US$33.3m more liquid assets than total liabilities.

This surplus suggests that AnaptysBio has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, AnaptysBio 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 it is future earnings, more than anything, that will determine AnaptysBio'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 AnaptysBio wasn't profitable at an EBIT level, but managed to grow its revenue by 282%, to US$57m. That's virtually the hole-in-one of revenue growth!

So How Risky Is AnaptysBio?

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 AnaptysBio 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$103m and booked a US$166m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$79.6m. 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 AnaptysBio 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. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for AnaptysBio (of which 1 is concerning!) you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.