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.' 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. We can see that Autolus Therapeutics plc (NASDAQ:AUTL) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Autolus Therapeutics's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Autolus Therapeutics had US$248.9m of debt, an increase on US$140.8m, over one year. However, it does have US$657.1m in cash offsetting this, leading to net cash of US$408.1m.

How Strong Is Autolus Therapeutics' Balance Sheet?

The latest balance sheet data shows that Autolus Therapeutics had liabilities of US$52.5m due within a year, and liabilities of US$298.1m falling due after that. Offsetting this, it had US$657.1m in cash and US$43.3m in receivables that were due within 12 months. So it actually has US$349.8m more liquid assets than total liabilities.

This excess liquidity is a great indication that Autolus Therapeutics' balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Autolus Therapeutics 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 Autolus Therapeutics's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Autolus Therapeutics reported revenue of US$10m, which is a gain of 83%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Autolus Therapeutics?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Autolus Therapeutics had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$206m of cash and made a loss of US$270m. But the saving grace is the US$408.1m on the balance sheet. That means it could keep spending at its current rate for more than two years. Autolus 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. Pre-profit companies are often risky, but they can also offer great rewards. 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 3 warning signs for Autolus Therapeutics (1 is a bit concerning!) that you should be aware of before investing here.

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.