Is FibroGen (NASDAQ: FGEN) risky using debt?
David Iben put it well when he said, âVolatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ It is only natural to consider a company’s balance sheet when considering how risky it is, as debt is often involved when a business collapses. Above all, FibroGen, Inc. (NASDAQ: FGEN) is in debt. But does this debt worry shareholders?
When is debt dangerous?
Debts and other liabilities become risky for a business when it cannot easily meet these obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. Of course, many companies use debt to finance their growth without negative consequences. When we look at debt levels, we first look at cash and debt levels, together.
See our latest review for FibroGen
What is FibroGen’s net debt?
The graph below, which you can click for more details, shows that FibroGen was $ 17.9 million in debt as of September 2021; about the same as the year before. But on the other hand, it also has $ 486.4 million in cash, which leads to a net cash position of $ 468.5 million.
How strong is FibroGen’s balance sheet?
We can see from the most recent balance sheet that FibroGen had liabilities of US $ 209.3 million due within one year and liabilities of US $ 296.1 million due beyond. In compensation for these obligations, it had cash of US $ 486.4 million as well as receivables valued at US $ 44.0 million within 12 months. So he actually has $ 24.9 million Following liquid assets as total liabilities.
This state of affairs indicates that FibroGen’s balance sheet looks quite strong, as its total liabilities roughly equal its liquid assets. So while it’s hard to imagine the US $ 1.35 billion company struggling to get cash, we still think it’s worth watching its balance sheet. In short, FibroGen has a net cash flow, so it’s fair to say that it doesn’t have a lot of debt! The balance sheet is clearly the area to focus on when analyzing debt. But it is future profits, more than anything, that will determine FibroGen’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
Year over 12 months, FibroGen reported revenue of US $ 284 million, a gain of 138%, although it reported no profit before interest and taxes. So there is no doubt that shareholders encourage growth
So how risky is FibroGen?
Statistically speaking, businesses that lose money are riskier than those that earn it. And the point is that over the past twelve months, FibroGen has lost money in earnings before interest and taxes (EBIT). And during the same period, it recorded a negative free cash outflow of US $ 66 million and a book loss of US $ 215 million. But the saving grace is the 468.5 million US dollars on the balance sheet. This means that he could continue to spend at his current rate for more than two years. The good news for shareholders is that FibroGen is experiencing tremendous revenue growth, so there is a very good chance that it will be able to increase its free cash flow in the years to come. While unprofitable businesses can be risky, they can also grow quickly and rapidly during those pre-profit years. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks lie on the balance sheet – far from it. Concrete example: we have spotted 3 warning signs for FibroGen you must be aware.
If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash-flow net-growth stocks.
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