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. We note that Nuvation Bio Inc. (NYSE:NUVB) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Nuvation Bio's Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Nuvation Bio had debt of US$8.43m, up from none in one year. But it also has US$549.1m in cash to offset that, meaning it has US$540.7m net cash.

A Look At Nuvation Bio's Liabilities

We can see from the most recent balance sheet that Nuvation Bio had liabilities of US$59.0m falling due within a year, and liabilities of US$9.83m due beyond that. Offsetting these obligations, it had cash of US$549.1m as well as receivables valued at US$4.25m due within 12 months. So it actually has US$484.5m more liquid assets than total liabilities.

This surplus liquidity suggests that Nuvation Bio's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Nuvation Bio 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 Nuvation Bio 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 Nuvation Bio managed to produce its first revenue as a listed company, but given the lack of profit, shareholders will no doubt be hoping to see some strong increases.

So How Risky Is Nuvation Bio?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Nuvation Bio lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$99m of cash and made a loss of US$532m. While this does make the company a bit risky, it's important to remember it has net cash of US$540.7m. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. To that end, you should learn about the 4 warning signs we've spotted with Nuvation Bio (including 1 which is significant) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.