Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Blueprint Medicines Corporation (NASDAQ:BPMC) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

Check out our latest analysis for Blueprint Medicines

What Is Blueprint Medicines's Debt?

As you can see below, at the end of September 2023, Blueprint Medicines had US$238.4m of debt, up from US$138.4m a year ago. Click the image for more detail. However, it does have US$713.0m in cash offsetting this, leading to net cash of US$474.6m.

How Strong Is Blueprint Medicines' Balance Sheet?

According to the last reported balance sheet, Blueprint Medicines had liabilities of US$197.4m due within 12 months, and liabilities of US$705.3m due beyond 12 months. Offsetting this, it had US$713.0m in cash and US$41.3m in receivables that were due within 12 months. So it has liabilities totalling US$148.5m more than its cash and near-term receivables, combined.

Since publicly traded Blueprint Medicines shares are worth a total of US$5.35b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Blueprint Medicines 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 it is future earnings, more than anything, that will determine Blueprint Medicines'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.

In the last year Blueprint Medicines had a loss before interest and tax, and actually shrunk its revenue by 21%, to US$216m. To be frank that doesn't bode well.

So How Risky Is Blueprint Medicines?

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 Blueprint Medicines had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$492m of cash and made a loss of US$555m. But at least it has US$474.6m on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Blueprint Medicines that you should be aware of.

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.