NASDAQ:RIGL) makes use of debt. But is this debt a concern to shareholders?” data-reactid=”28″ type=”text”>Warren Buffett famously said, ‘Volatility is far from synonymous with risk.’ 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. As with many other companies Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) makes use of debt. But is this debt a concern to shareholders?
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.
Check out our latest analysis for Rigel Pharmaceuticals ” data-reactid=”31″ type=”text”> Check out our latest analysis for Rigel Pharmaceuticals
What Is Rigel Pharmaceuticals’s Debt?
As you can see below, at the end of June 2020, Rigel Pharmaceuticals had US$19.8m of debt, up from none a year ago. Click the image for more detail. However, its balance sheet shows it holds US$92.5m in cash, so it actually has US$72.7m net cash.
How Healthy Is Rigel Pharmaceuticals’s Balance Sheet?
this free report on analyst profit forecasts to be interesting.” data-reactid=”52″ type=”text”>This surplus suggests that Rigel Pharmaceuticals has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Rigel Pharmaceuticals 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 ultimately the future profitability of the business will decide if Rigel Pharmaceuticals can strengthen its balance sheet over time. 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, Rigel Pharmaceuticals reported revenue of US$108m, which is a gain of 64%, 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 Rigel Pharmaceuticals?
1 warning sign for Rigel Pharmaceuticals you should know about.” data-reactid=”55″ type=”text”>Statistically speaking companies that lose money are riskier than those that make money. And we do note that Rigel Pharmaceuticals 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$42.9m and booked a US$25.0m accounting loss. However, it has net cash of US$72.7m, so it has a bit of time before it will need more capital. Rigel Pharmaceuticals’s revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger 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. Consider risks, for instance. Every company has them, and we’ve spotted 1 warning sign for Rigel Pharmaceuticals you should know about.
list of growing businesses that have net cash on the balance sheet.” data-reactid=”60″ type=”text”>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.
This article by Simply Wall St is general in nature. 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.