David Iben said it well when he said: “Volatility is not a risk that interests us. What matters to us is to avoid the permanent loss of capital. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. Above all, Blueprint Medicines Corporation (NASDAQ: BPMC) is in debt. But should shareholders worry about its use of debt?
What risk does debt carry?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it exists at their mercy. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. The first thing to do when considering how much debt a business has is to look at its cash and debt together.
What is Blueprint Medicines’ net debt?
You can click on the chart below for historical numbers, but it shows that as of September 2022, Blueprint Medicines had debt of $138.4 million, an increase from zero, year-over-year. But he also has $1.14 billion in cash to offset that, which means he has $998.6 million in net cash.
A Look at Blueprint Medicines Responsibilities
We can see from the most recent balance sheet that Blueprint Medicines had liabilities of US$175.5 million due in one year, and liabilities of US$642.6 million due beyond. In return, he had $1.14 billion in cash and $21.9 million in receivables due within 12 months. So he actually has US$340.8 million After liquid assets than total liabilities.
This surplus suggests that Blueprint Medicines has a conservative balance sheet and could probably eliminate its debt without too much difficulty. In short, Blueprint Medicines has clean cash, so it’s fair to say that it doesn’t have heavy debt! The balance sheet is clearly the area to focus on when analyzing debt. But it is future earnings, more than anything, that will determine Blueprint Medicines’ ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecasts.
Year-over-year, Blueprint Medicines reported revenue of $272 million, a 154% gain, although it reported no earnings before interest and taxes. Its fairly obvious shareholders therefore hope for more growth!
So how risky is Blueprint Medicines?
Statistically speaking, businesses that lose money are riskier than those that make money. And the fact is that over the past twelve months, Blueprint Medicines has been losing money in earnings before interest and taxes (EBIT). Indeed, during this period, it burned $404 million in cash and suffered a loss of $718 million. But at least it has $998.6 million on the balance sheet to spend on near-term growth. Importantly, revenue growth for Blueprint Medicines is imminent. High-growth, for-profit businesses may well be risky, but they can also offer great rewards. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks reside on the balance sheet, far from it. We have identified 2 warning signs with Blueprint Drugs and understanding them should be part of your investment process.
In the end, it’s often best to focus on companies that aren’t in debt. You can access our special list of these companies (all with a track record of earnings growth). It’s free.
What are the risks and opportunities for Medication Master Plan?
Revenues are expected to increase by 36.56% per year
Significant insider selling in the last 3 months
Currently unprofitable and not expected to become profitable within the next 3 years
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.