Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from risk.” So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. We note that Travere Therapeutics, Inc. (NASDAQ: TVTX) has debt on its balance sheet. But the real question is whether this debt makes the business risky.
When is debt dangerous?
Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. If things really go wrong, lenders can take over the business. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
Check out our latest review for Travere Therapeutics
What is Travere Therapeutics’ net debt?
You can click on the graph below for historical figures, but it shows that as of June 2021, Travere Therapeutics had a debt of US $ 220.9 million, an increase from US $ 210.0 million. , over one year. However, it has $ 522.8 million in cash offsetting that, which leads to a net cash of $ 301.9 million.
How strong is Travere Therapeutics’ balance sheet?
The latest balance sheet data shows that Travere Therapeutics had liabilities of US $ 97.0 million due within one year, and liabilities of US $ 317.5 million due thereafter. In return, he had $ 522.8 million in cash and $ 12.3 million in receivables due within 12 months. He can therefore avail himself of $ 120.6 million in liquid assets more than total Liabilities.
This short-term liquidity is a sign that Travere Therapeutics could likely repay its debt with ease, as its balance sheet is far from tight. In short, Travere Therapeutics has clean cash flow, so it’s fair to say it doesn’t have a lot of debt! When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Travere Therapeutics can strengthen its balance sheet over time. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Year over 12 months, Travere Therapeutics reported sales of US $ 204 million, a gain of 9.0%, although it reported no profit before interest and taxes. This rate of growth is a bit slow for our taste, but it takes all types to make a world.
So how risky is Travere Therapeutics?
We are convinced that loss-making companies are, in general, riskier than profitable companies. And the point is that over the past twelve months Travere Therapeutics has lost money in earnings before interest and taxes (EBIT). And during the same period, it recorded negative free cash outflows of US $ 56 million and a book loss of US $ 237 million. While this does make the company a bit risky, it’s important to remember that it has a net cash position of $ 301.9 million. This jackpot means the business can continue to spend on growth for at least two years, at current rates. Overall, its balance sheet doesn’t look too risky at the moment, but we are still cautious until we see positive free cash flow. The balance sheet is clearly the area you need to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist off the balance sheet. Be aware that Travere Therapeutics shows 4 warning signs in our investment analysis , you must know…
If you are interested in investing in companies that can generate profits without the burden of debt, check out this page free list of growing companies that have net cash on the balance sheet.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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