David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 TG Therapeutics, Inc. (NASDAQ:TGTX) makes use of debt. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.
What Is TG Therapeutics's Debt?
The image below, which you can click on for greater detail, shows that at September 2024 TG Therapeutics had debt of US$244.2m, up from US$99.1m in one year. But it also has US$341.0m in cash to offset that, meaning it has US$96.9m net cash.
A Look At TG Therapeutics' Liabilities
We can see from the most recent balance sheet that TG Therapeutics had liabilities of US$125.1m falling due within a year, and liabilities of US$268.7m due beyond that. Offsetting these obligations, it had cash of US$341.0m as well as receivables valued at US$115.7m due within 12 months. So it actually has US$62.9m more liquid assets than total liabilities.
This state of affairs indicates that TG Therapeutics' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$4.99b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, TG Therapeutics boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if TG 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.
In the last year TG Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 40%, to US$265m. With any luck the company will be able to grow its way to profitability.
So How Risky Is TG Therapeutics?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months TG Therapeutics lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$28m of cash and made a loss of US$14m. But the saving grace is the US$96.9m on the balance sheet. That means it could keep spending at its current rate for more than two years. TG Therapeutics's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with TG Therapeutics , and understanding them should be part of your investment process.
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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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.
