Legendary fund manager Li Lu (who Charlie Munger backed) once said, ‘The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ 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. We note that Revance Therapeutics, Inc.<\/strong> (NASDAQ:RVNC<\/a>) does have debt on its balance sheet. But the real question is whether this debt is making the company risky. <\/p>\n Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. When we think about a company’s use of debt, we first look at cash and debt together. <\/p>\n View our latest analysis for Revance Therapeutics <\/a><\/span><\/p>\n The image below, which you can click on for greater detail, shows that at September 2022 Revance Therapeutics had debt of US$378.9m, up from US$280.3m in one year. However, because it has a cash reserve of US$378.6m, its net debt is less, at about US$262.0k. <\/p>\n Zooming in on the latest balance sheet data, we can see that Revance Therapeutics had liabilities of US$74.7m due within 12 months and liabilities of US$491.1m due beyond that. Offsetting these obligations, it had cash of US$378.6m as well as receivables valued at US$11.7m due within 12 months. So it has liabilities totalling US$175.5m more than its cash and near-term receivables, combined. <\/p>\n Since publicly traded Revance Therapeutics shares are worth a total of US$1.52b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. But either way, Revance Therapeutics has virtually no net debt, so it’s fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Revance Therapeutics’s ability to maintain a healthy balance sheet going forward. So if you’re focused on the future you can check out this free<\/strong> report showing analyst profit forecasts<\/a>. <\/p>\n Over 12 months, Revance Therapeutics reported revenue of US$109m, which is a gain of 72%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits. <\/p>\n Even though Revance Therapeutics managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost a very considerable US$259m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$214m in negative free cash flow over the last twelve months. So in short it’s a really risky stock. There’s no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we’ve discovered 2 warning signs for Revance Therapeutics<\/strong><\/a> that you should be aware of before investing here. <\/p>\n When all is said and done, sometimes its easier to focus on companies that don’t even need debt. Readers can access a list of growth stocks with zero net debt<\/a> 100% free<\/strong>, right now. <\/p>\n What are the risks and opportunities for Revance Therapeutics?<\/p>\n Why Does Debt Bring Risk? <\/h2>\n
What Is Revance Therapeutics’s Debt? <\/h2>\n
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A Look At Revance Therapeutics’ Liabilities <\/h2>\n
Caveat Emptor<\/h2>\n