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.' 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 MeiraGTx Holdings plc (NASDAQ:MGTX) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 MeiraGTx Holdings Carry?

As you can see below, MeiraGTx Holdings had US$72.9m of debt, at September 2024, 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$122.9m in cash, leading to a US$49.9m net cash position.

A Look At MeiraGTx Holdings' Liabilities

The latest balance sheet data shows that MeiraGTx Holdings had liabilities of US$59.4m due within a year, and liabilities of US$144.3m falling due after that. On the other hand, it had cash of US$122.9m and US$8.43m worth of receivables due within a year. So its liabilities total US$72.4m more than the combination of its cash and short-term receivables.

Of course, MeiraGTx Holdings has a market capitalization of US$506.4m, so these liabilities are probably manageable. 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, MeiraGTx Holdings also has more cash than debt, so we're pretty confident 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 MeiraGTx Holdings'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.

Over 12 months, MeiraGTx Holdings reported revenue of US$14m, which is a gain of 108%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth

So How Risky Is MeiraGTx Holdings?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that MeiraGTx Holdings had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$103m of cash and made a loss of US$88m. However, it has net cash of US$49.9m, so it has a bit of time before it will need more capital. The good news for shareholders is that MeiraGTx Holdings has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that MeiraGTx Holdings is showing 1 warning sign in our investment analysis , you should know about...

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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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.