Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 PhaseBio Pharmaceuticals, Inc. (NASDAQ:PHAS) makes use of debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for PhaseBio Pharmaceuticals

What Is PhaseBio Pharmaceuticals's Net Debt?

The image below, which you can click on for greater detail, shows that PhaseBio Pharmaceuticals had debt of US$11.4m at the end of March 2021, a reduction from US$15.0m over a year. But it also has US$77.0m in cash to offset that, meaning it has US$65.5m net cash.

How Strong Is PhaseBio Pharmaceuticals' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that PhaseBio Pharmaceuticals had liabilities of US$16.7m due within 12 months and liabilities of US$75.7m due beyond that. Offsetting this, it had US$77.0m in cash and US$896.0k in receivables that were due within 12 months. So its liabilities total US$14.6m more than the combination of its cash and short-term receivables.

Since publicly traded PhaseBio Pharmaceuticals shares are worth a total of US$184.1m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, PhaseBio Pharmaceuticals boasts net cash, 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 PhaseBio Pharmaceuticals's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.