Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Centessa Pharmaceuticals plc (NASDAQ:CNTA) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Centessa Pharmaceuticals Carry?

As you can see below, Centessa Pharmaceuticals had US$75.7m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$518.4m in cash offsetting this, leading to net cash of US$442.7m.

A Look At Centessa Pharmaceuticals' Liabilities

The latest balance sheet data shows that Centessa Pharmaceuticals had liabilities of US$26.4m due within a year, and liabilities of US$84.2m falling due after that. On the other hand, it had cash of US$518.4m and US$40.0m worth of receivables due within a year. So it can boast US$447.9m more liquid assets than total liabilities.

This excess liquidity suggests that Centessa Pharmaceuticals is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Centessa 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 Centessa Pharmaceuticals'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.

While it hasn't made a profit, at least Centessa Pharmaceuticals booked its first revenue as a publicly listed company, in the last twelve months.

So How Risky Is Centessa Pharmaceuticals?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Centessa Pharmaceuticals had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$130m of cash and made a loss of US$161m. But the saving grace is the US$442.7m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for Centessa Pharmaceuticals (1 is significant!) 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.