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.' 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. As with many other companies Legend Biotech Corporation (NASDAQ:LEGN) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Legend Biotech Carry?

As you can see below, at the end of June 2024, Legend Biotech had US$291.6m of debt, up from US$270.6m a year ago. Click the image for more detail. But it also has US$1.29b in cash to offset that, meaning it has US$1.00b net cash.

How Strong Is Legend Biotech's Balance Sheet?

The latest balance sheet data shows that Legend Biotech had liabilities of US$294.3m due within a year, and liabilities of US$344.9m falling due after that. Offsetting these obligations, it had cash of US$1.29b as well as receivables valued at US$101.4m due within 12 months. So it can boast US$754.0m more liquid assets than total liabilities.

This short term liquidity is a sign that Legend Biotech could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Legend Biotech 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 Legend Biotech's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Legend Biotech reported revenue of US$456m, which is a gain of 177%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth

So How Risky Is Legend Biotech?

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 Legend Biotech had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$165m and booked a US$285m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$1.00b. That means it could keep spending at its current rate for more than two years. Importantly, Legend Biotech's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Legend Biotech's profit, revenue, and operating cashflow have changed over the last few years.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.