Is Calliditas Therapeutics (STO:CALTX) a risky investment?
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 seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. We note that Calliditas Therapeutics AB (editor) (STO:CALTX) has debt on its balance sheet. But the more important question is: what risk does this debt create?
When is debt a problem?
Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force 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. When we look at debt levels, we first consider cash and debt levels, together.
See our latest review for Calliditas Therapeutics
What is Calliditas Therapeutics’ net debt?
The image below, which you can click on for more details, shows that as of December 2021, Calliditas Therapeutics had a debt of 189.2 million kr, compared to none in a year. But he also has 955.5 million kr in cash to offset this, which means he has a net cash of 766.3 million kr.
How strong is Calliditas Therapeutics’ balance sheet?
Zooming in on the latest balance sheet data, we can see that Calliditas Therapeutics had liabilities of kr 135.4 million due within 12 months and liabilities of kr 316.2 million due beyond. In return, he had 955.5 million kr in cash and 11.3 million kr in debt due within 12 months. So he actually has 515.2 million kr After liquid assets than total liabilities.
This surplus suggests that Calliditas Therapeutics has a conservative balance sheet and could probably eliminate its debt without too much difficulty. Simply put, the fact that Calliditas Therapeutics has more cash than debt is arguably a good indication that it can safely manage its debt. There is no doubt that we learn the most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Calliditas Therapeutics’ ability to maintain a healthy balance sheet in the future. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Over 12 months, Calliditas Therapeutics reported revenue of kr 229 million, a gain of 26,141%, although it reported no earnings before interest and taxes. When it comes to revenue growth, it’s like winning the 3-point game!
So what is the risk of Calliditas Therapeutics?
By their very nature, companies that lose money are riskier than those with a long history of profitability. And over the past year, Calliditas Therapeutics has had a loss in earnings before interest and taxes (EBIT), if truth be told. And during the same period, it recorded a negative free cash outflow of 462 million kr and recorded an accounting loss of 500 million kr. But the saving grace is the kr766.3m on the balance sheet. That means it could continue spending at its current rate for more than two years. The good news for shareholders is that Calliditas Therapeutics has meteoric revenue growth, so there is a very good chance that it can increase its free cash flow in the years to come. While unprofitable businesses can be risky, they can also grow strongly and quickly in those pre-profit years. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks reside on the balance sheet, far from it. For example, we have identified 2 warning signs for Calliditas Therapeutics of which you should be aware.
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.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
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.