Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from synonymous with risk.” 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. Like many other companies Revance Therapeutics, Inc. (NASDAQ:RVNC) uses debt. But the more important question is: what risk does this debt create?
When is debt a problem?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it exists at their mercy. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. The first thing to do when considering how much debt a business has is to look at its cash and debt together.
See our latest review for Revance Therapeutics
How much debt does Revance Therapeutics have?
As you can see below, at the end of December 2021, Revance Therapeutics had $280.6 million in debt, up from $180.5 million a year ago. Click on the image for more details. However, he has $225.1 million in cash to offset this, resulting in a net debt of approximately $55.6 million.
A look at the responsibilities of Revance Therapeutics
The latest balance sheet data shows that Revance Therapeutics had liabilities of $67.3 million due within the year, and liabilities of $395.4 million due thereafter. In return, he had $225.1 million in cash and $3.51 million in receivables due within 12 months. Thus, its liabilities total $234.1 million more than the combination of its cash and short-term receivables.
Given that Revance Therapeutics has a market cap of US$1.33 billion, it’s hard to believe that these liabilities pose much of a threat. That said, it is clear that we must continue to monitor its record, lest it deteriorate. The balance sheet is clearly the area to focus on when analyzing debt. But it is future earnings, more than anything, that will determine Revance 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.
Last year, Revance Therapeutics was not profitable on an EBIT level, but managed to increase its revenue by 408%, to $78 million. That’s practically the hole-in-one of revenue growth!
Even though Revance Therapeutics has managed to grow its revenue line quite ably, the harsh truth is that it is losing money on the EBIT line. Its EBIT loss was US$275 million. When we look at this and recall the liabilities on its balance sheet, versus cash, it seems unwise to us that the company has debt. Quite frankly, we think the track record falls short, although it could improve over time. However, it doesn’t help that he’s burned through $232 million in cash in the past year. In short, it’s a really risky title. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks reside on the balance sheet, far from it. Know that Revance Therapeutics shows 3 warning signs in our investment analysis you should know…
If you are interested in investing in companies that can generate profits without the burden of debt, then check out this free list of growing companies that have net cash on the balance sheet.
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