Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that PhaseBio Pharmaceuticals, Inc. (NASDAQ:PHAS) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for PhaseBio Pharmaceuticals

What Is PhaseBio Pharmaceuticals's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2019 PhaseBio Pharmaceuticals had US$9.73m of debt, an increase on US$7.5, over one year. But it also has US$81.8m in cash to offset that, meaning it has US$72.0m net cash.

A Look At PhaseBio Pharmaceuticals's Liabilities

According to the last reported balance sheet, PhaseBio Pharmaceuticals had liabilities of US$5.96m due within 12 months, and liabilities of US$9.44m due beyond 12 months. On the other hand, it had cash of US$81.8m and US$583.0k worth of receivables due within a year. So it actually has US$67.0m more liquid assets than total liabilities.

This surplus liquidity suggests that PhaseBio Pharmaceuticals's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, 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 ultimately the future profitability of the business will decide if PhaseBio Pharmaceuticals can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.