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Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) does carry debt. But the more important question is: how much risk is that debt creating?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for Regeneron Pharmaceuticals
What Is Regeneron Pharmaceuticals's Debt?
As you can see below, Regeneron Pharmaceuticals had US$1.98b of debt, at June 2023, which is about the same as the year before. You can click the chart for greater detail. But it also has US$8.93b in cash to offset that, meaning it has US$6.95b net cash.
How Strong Is Regeneron Pharmaceuticals' Balance Sheet?
The latest balance sheet data shows that Regeneron Pharmaceuticals had liabilities of US$3.10b due within a year, and liabilities of US$3.54b falling due after that. Offsetting these obligations, it had cash of US$8.93b as well as receivables valued at US$5.12b due within 12 months. So it can boast US$7.41b more liquid assets than total liabilities.
This short term liquidity is a sign that Regeneron Pharmaceuticals could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Regeneron Pharmaceuticals has more cash than debt is arguably a good indication that it can manage its debt safely.
The modesty of its debt load may become crucial for Regeneron Pharmaceuticals if management cannot prevent a repeat of the 38% cut to EBIT over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Regeneron 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.