Pluristem Therapeutics (NASDAQ: PSTI) has debt but no profit; Should we be worried?

David Iben put it well when he said, “Volatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ It is only natural to consider a company’s balance sheet when considering how risky it is, as debt is often involved when a business collapses. We note that Pluristem Therapeutics inc. (NASDAQ: PSTI) has debt on its balance sheet. But does this debt worry shareholders?

When is debt dangerous?

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. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution of a business with the ability to reinvest at high rates of return. When we look at debt levels, we first look at cash and debt levels, together.

Check out our latest review for Pluristem Therapeutics

What is the debt of Pluristem Therapeutics?

The image below, which you can click for more details, shows that in September 2021, Pluristem Therapeutics was in debt of $ 23.4 million, up from none in a year. However, it has $ 60.7 million in cash offsetting that, which leads to a net cash of $ 37.2 million.

NasdaqGM: History of debt to equity of the PSTI December 4, 2021

How healthy is Pluristem Therapeutics’ track record?

Zooming in on the latest balance sheet data, we can see that Pluristem Therapeutics had liabilities of US $ 10.4 million due within 12 months and US $ 24.5 million liabilities beyond. On the other hand, he had cash of US $ 60.7 million and receivables worth US $ 1.49 million within a year. He can therefore avail himself of $ 27.3 million in liquid assets more than total Liabilities.

This abundant liquidity means that Pluristem Therapeutics’ balance sheet is as solid as a giant sequoia. Given this fact, we believe its track record is as strong as an ox. In short, Pluristem Therapeutics has clean cash flow, so it’s fair to say it doesn’t have a lot of debt! There is no doubt that we learn the most about debt from the balance sheet. But it is future profits, more than anything, that will determine Pluristem Therapeutics’ ability to maintain a healthy balance sheet in the future. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

Given its lack of significant operating income, Pluristem Therapeutics shareholders are no doubt hoping that it will be able to finance itself until it has a profitable product.

So how risky is Pluristem Therapeutics?

By their very nature, businesses that lose money are riskier than those with a long history of profitability. And the point is that over the past twelve months Pluristem Therapeutics has lost money in earnings before interest and taxes (EBIT). And during the same period, it recorded a negative free cash outflow of US $ 34 million and a book loss of US $ 53 million. With only $ 37.2 million on the balance sheet, it looks like it will soon have to raise capital again. 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 place to start. But at the end of the day, every business can contain risks that exist off the balance sheet. Concrete example: we have spotted 5 warning signs for Pluristem Therapeutics you need to be aware of it, and one of them is a bit of concern.

At the end of the day, it’s often best to focus on businesses that don’t have net debt. You can access our special list of these companies (all with a history of profit growth). It’s free.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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