Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Nuvation Bio Inc. (NYSE:NUVB) does carry debt. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Nuvation Bio's Debt?
You can click the graphic below for the historical numbers, but it shows that as of June 2024 Nuvation Bio had US$11.6m of debt, an increase on none, over one year. But it also has US$577.2m in cash to offset that, meaning it has US$565.5m net cash.
How Strong Is Nuvation Bio's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Nuvation Bio had liabilities of US$51.1m due within 12 months and liabilities of US$11.6m due beyond that. On the other hand, it had cash of US$577.2m and US$4.01m worth of receivables due within a year. So it can boast US$518.5m 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. Simply put, the fact that Nuvation Bio 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 ultimately the future profitability of the business will decide if Nuvation Bio can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
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?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Nuvation Bio had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$84m and booked a US$511m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$565.5m. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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 Nuvation Bio is showing 3 warning signs in our investment analysis , you should know about...
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
