Is Outlook Therapeutics (NASDAQ:OTLK) using too much debt?

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Berkshire Hathaway’s Charlie Munger-backed outside fund manager Li Lu is quick to say, “The biggest risk in investing isn’t price volatility, but whether you’re going to suffer a permanent loss of capital “. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. Like many other companies Outlook Therapeutics, Inc. (NASDAQ:OTLK) uses debt. But does this debt worry shareholders?

What risk does debt carry?

Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. The first thing to do when considering how much debt a business has is to look at its cash and debt together.

Check out our latest analysis for Outlook Therapeutics

How much debt does Outlook Therapeutics have?

You can click on the graph below for historical numbers, but it shows that in March 2022, Outlook Therapeutics had debt of $22.8 million, an increase of $11.3 million, year-over-year . However, his balance sheet shows that he holds $58.4 million in cash, so he actually has net cash of $35.6 million.

NasdaqCM: OTLK Debt to Equity History July 6, 2022

How healthy is Outlook Therapeutics’ balance sheet?

Zooming in on the latest balance sheet data, we can see that Outlook Therapeutics had liabilities of $31.4 million due within 12 months and liabilities of $312.3,000 due beyond. In compensation for these obligations, it had cash of US$58.4 million as well as receivables valued at US$100.0 k maturing within 12 months. So he actually has $26.8 million After liquid assets than total liabilities.

This short-term liquidity is a sign that Outlook Therapeutics could probably service its debt easily, as its balance sheet is far from stretched. In short, Outlook Therapeutics has clean cash, so it’s fair to say that they don’t have a lot of debt! The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether Outlook Therapeutics can strengthen its balance sheet over time. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

Since Outlook Therapeutics doesn’t have significant operating revenue, shareholders can hope it comes up with a great new product, before it runs out of money.

So how risky is Outlook Therapeutics?

We have no doubt that loss-making companies are, in general, more risky than profitable companies. And over the past year, Outlook Therapeutics has posted a loss in earnings before interest and taxes (EBIT), if truth be told. And during the same period, it recorded a negative free cash outflow of $55 million and recorded a book loss of $60 million. Given that it only has net cash of US$35.6 million, the company may need to raise more capital if it does not break even soon. Overall, its balance sheet doesn’t look too risky, at the moment, but we’re still cautious until we see positive free cash flow. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. Example: we have identified 4 warning signs for Outlook Therapeutics you should be aware of, and 2 of them are potentially serious.

In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeat present.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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