David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Replimune Group, Inc. (NASDAQ:REPL) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Replimune Group's Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Replimune Group had debt of US$45.6m, up from US$29.2m in one year. But it also has US$432.1m in cash to offset that, meaning it has US$386.5m net cash.

How Strong Is Replimune Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Replimune Group had liabilities of US$43.8m due within 12 months and liabilities of US$73.0m due beyond that. On the other hand, it had cash of US$432.1m and US$2.05m worth of receivables due within a year. So it can boast US$317.4m more liquid assets than total liabilities.

This luscious liquidity implies that Replimune Group's balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Replimune Group 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 Replimune Group can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Given its lack of meaningful operating revenue, Replimune Group shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is Replimune Group?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Replimune Group had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$188m of cash and made a loss of US$213m. However, it has net cash of US$386.5m, so it has a bit of time before it will need more capital. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Replimune Group is showing 5 warning signs in our investment analysis , and 1 of those can't be ignored...

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.