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Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) does carry debt. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.
See our latest analysis for Apellis Pharmaceuticals
How Much Debt Does Apellis Pharmaceuticals Carry?
You can click the graphic below for the historical numbers, but it shows that as of March 2021 Apellis Pharmaceuticals had US$386.2m of debt, an increase on US$144.6m, over one year. But on the other hand it also has US$723.7m in cash, leading to a US$337.5m net cash position.
A Look At Apellis Pharmaceuticals' Liabilities
According to the last reported balance sheet, Apellis Pharmaceuticals had liabilities of US$83.7m due within 12 months, and liabilities of US$674.8m due beyond 12 months. Offsetting these obligations, it had cash of US$723.7m as well as receivables valued at US$20.0m due within 12 months. So these liquid assets roughly match the total liabilities.
Having regard to Apellis Pharmaceuticals' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$4.08b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Apellis Pharmaceuticals boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Apellis Pharmaceuticals's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.