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Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Intellia Therapeutics, Inc. (NASDAQ:NTLA) does carry debt. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for Intellia Therapeutics
What Is Intellia Therapeutics's Debt?
The image below, which you can click on for greater detail, shows that at March 2022 Intellia Therapeutics had debt of US$71.8m, up from none in one year. However, its balance sheet shows it holds US$855.3m in cash, so it actually has US$783.4m net cash.
How Strong Is Intellia Therapeutics' Balance Sheet?
We can see from the most recent balance sheet that Intellia Therapeutics had liabilities of US$126.1m falling due within a year, and liabilities of US$122.9m due beyond that. Offsetting these obligations, it had cash of US$855.3m as well as receivables valued at US$1.80m due within 12 months. So it can boast US$608.0m more liquid assets than total liabilities.
This surplus suggests that Intellia Therapeutics has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Intellia Therapeutics has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Intellia Therapeutics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
In the last year Intellia Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 8.4%, to US$45m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.