Here’s Why Xeris Pharmaceuticals (NASDAQ:XERS) Can Manage Its Debt Despite Losing Money

By Simply Wall St Published June 08, 2021

Warren Buffett famously said, ‘Volatility is far from synonymous with risk.’ 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, Xeris Pharmaceuticals, Inc. (NASDAQ:XERS) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Xeris Pharmaceuticals

How Much Debt Does Xeris Pharmaceuticals Carry?

The image below, which you can click on for greater detail, shows that at March 2021 Xeris Pharmaceuticals had debt of US$87.3m, up from US$58.5m in one year. But it also has US$135.9m in cash to offset that, meaning it has US$48.6m net cash.

A Look At Xeris Pharmaceuticals’ Liabilities

According to the last reported balance sheet, Xeris Pharmaceuticals had liabilities of US$27.4m due within 12 months, and liabilities of US$95.8m due beyond 12 months. On the other hand, it had cash of US$135.9m and US$8.94m worth of receivables due within a year. So it actually has US$21.6m more liquid assets than total liabilities.

This surplus suggests that Xeris Pharmaceuticals has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Xeris 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 Xeris Pharmaceuticals’s ability to maintain a healthy balance sheet going forward. So if you’re focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Xeris Pharmaceuticals wasn’t profitable at an EBIT level, but managed to grow its revenue by 530%, to US$27m. When it comes to revenue growth, that’s like nailing the game winning 3-pointer!

So How Risky Is Xeris Pharmaceuticals?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Xeris Pharmaceuticals had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$76m and booked a US$80m accounting loss. With only US$48.6m on the balance sheet, it would appear that its going to need to raise capital again soon. Importantly, Xeris Pharmaceuticals’s revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we’ve spotted 2 warning signs for Xeris Pharmaceuticals (of which 1 makes us a bit uncomfortable!) you should know about.

If you’re interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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