Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. Importantly, Vera Therapeutics, Inc. (NASDAQ:VERA) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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.

What Is Vera Therapeutics's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Vera Therapeutics had US$50.3m of debt, an increase on US$25.0m, over one year. However, its balance sheet shows it holds US$384.4m in cash, so it actually has US$334.1m net cash.

A Look At Vera Therapeutics' Liabilities

We can see from the most recent balance sheet that Vera Therapeutics had liabilities of US$18.4m falling due within a year, and liabilities of US$51.0m due beyond that. Offsetting these obligations, it had cash of US$384.4m as well as receivables valued at US$1.96m due within 12 months. So it actually has US$316.9m more liquid assets than total liabilities.

This short term liquidity is a sign that Vera Therapeutics could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Vera Therapeutics boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Vera Therapeutics can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Since Vera Therapeutics doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

So How Risky Is Vera Therapeutics?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Vera Therapeutics had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$107m of cash and made a loss of US$108m. While this does make the company a bit risky, it's important to remember it has net cash of US$334.1m. That means it could keep spending at its current rate for more than two years. 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 Vera Therapeutics has 3 warning signs (and 1 which is significant) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.