Does Lexicon Pharmaceuticals (NASDAQ: LXRX) have a healthy track record?
Warren Buffett said: “Volatility is far from synonymous with risk”. So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. We notice that Pharmaceutical Lexicon, Inc. (NASDAQ: LXRX) has debt on its balance sheet. But does this debt worry shareholders?
What risk does debt entail?
Debts and other liabilities become risky for a business when it cannot easily meet these obligations, either with free cash flow or by raising capital at an attractive price. If things really go wrong, lenders can take over the business. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. Of course, debt can be an important tool in businesses, especially capital intensive businesses. When we look at debt levels, we first look at cash and debt levels, together.
What is the debt of Lexicon Pharmaceuticals?
You can click on the chart below for historical numbers, but it shows that Lexicon Pharmaceuticals had $ 11.7 million in debt as of September 2021, up from $ 20.3 million a year earlier. However, his balance sheet shows that he holds $ 120.9 million in cash, so he actually has $ 109.2 million in net cash.
NasdaqGS: LXRX History of debt to equity December 23, 2021
How strong is Lexicon Pharmaceuticals’ balance sheet?
Zooming in on the latest balance sheet data, we can see that Lexicon Pharmaceuticals had a liability of US $ 34.2 million due within 12 months and a liability of US $ 1.48 million due beyond. In compensation for these obligations, it had cash of US $ 120.9 million as well as receivables valued at US $ 23,000 due within 12 months. So he actually has $ 85.2 million Following liquid assets as total liabilities.
This surplus suggests that Lexicon Pharmaceuticals has a conservative balance sheet and could likely eliminate its debt without too much difficulty. In short, Lexicon Pharmaceuticals has a net cash flow, so it’s fair to say that it doesn’t have a lot of debt! The balance sheet is clearly the area to focus on when analyzing debt. But it is future profits, more than anything, that will determine Lexicon Pharmaceuticals’ 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 Profit Forecast report interesting.
Given its lack of significant operating income, Lexicon Pharmaceuticals shareholders are no doubt hoping that it can fund itself until it has a profitable product.
So how risky is Lexicon Pharmaceuticals?
By their very nature, businesses that lose money are riskier than those with a long history of profitability. And we note that Lexicon Pharmaceuticals recorded a loss of earnings before interest and taxes (EBIT) over the past year. Indeed, during that time it burned $ 100 million in cash and incurred a loss of $ 68 million. With just $ 109.2 million on the balance sheet, it looks like it will soon have to raise capital again. Even if its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company does not produce regular free cash flow. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist off the balance sheet. Concrete example: we have spotted 4 warning signs for Lexicon Pharmaceuticals you have to be aware of this, and one of them cannot be ignored.
Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash net growth stocks today.
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