Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, BeiGene, Ltd. (NASDAQ:BGNE) does carry debt. But should shareholders be worried about its use of debt?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does BeiGene Carry?

The image below, which you can click on for greater detail, shows that at June 2024 BeiGene had debt of US$1.04b, up from US$628.5m in one year. However, its balance sheet shows it holds US$2.59b in cash, so it actually has US$1.56b net cash.

A Look At BeiGene's Liabilities

The latest balance sheet data shows that BeiGene had liabilities of US$1.94b due within a year, and liabilities of US$407.2m falling due after that. Offsetting these obligations, it had cash of US$2.59b as well as receivables valued at US$588.2m due within 12 months. So it can boast US$835.0m more liquid assets than total liabilities.

This surplus suggests that BeiGene has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that BeiGene 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 BeiGene'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.

In the last year BeiGene wasn't profitable at an EBIT level, but managed to grow its revenue by 71%, to US$3.1b. With any luck the company will be able to grow its way to profitability.

So How Risky Is BeiGene?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that BeiGene had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$1.4b of cash and made a loss of US$524m. But at least it has US$1.56b on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, BeiGene may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that BeiGene is showing 2 warning signs 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.