Does Halozyme Therapeutics (NASDAQ: HALO) have a healthy track record?

Legendary fund manager Li Lu (whom Charlie Munger once backed) once said, “The greatest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. Above all, Halozyme Therapeutics, Inc. (NASDAQ:HALO) is in debt. But does this debt worry shareholders?

What risk does debt carry?

Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. By replacing dilution, however, debt can be a great tool for companies that need capital to invest in growth at high rates of return. The first step when considering a company’s debt levels is to consider its cash and debt together.

Check out our latest analysis for Halozyme Therapeutics

How much debt does Halozyme Therapeutics have?

You can click on the graph below for historical numbers, but it shows that as of September 2021, Halozyme Therapeutics had $875.7 million in debt, up from $393.6 million, on a year. On the other hand, he has $815.9 million in cash, resulting in a net debt of around $59.8 million.

How healthy is Halozyme Therapeutics’ track record?

According to the last published balance sheet, Halozyme Therapeutics had liabilities of US$113.2 million due within 12 months and liabilities of US$790.6 million due beyond 12 months. On the other hand, it had a cash position of 815.9 million dollars and 112.1 million dollars of receivables at less than one year. He can therefore boast of having $24.3 million in cash more than total Passives.

This indicates that Halozyme Therapeutics’ balance sheet looks quite strong, as its total liabilities roughly equal its cash. So it’s highly unlikely that the $4.77 billion company will run out of cash, but it’s still worth keeping an eye on the balance sheet. Carrying virtually no net debt, Halozyme Therapeutics is indeed very light in debt.

We measure a company’s leverage against its earning power by looking at its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and calculating how easily its earnings before interest and taxes (EBIT ) covers its interest charge (interest coverage). The advantage of this approach is that we consider both the absolute amount of debt (with net debt to EBITDA) and the actual interest expense associated with that debt (with its interest coverage ratio ).

Halozyme Therapeutics has a low net debt to EBITDA ratio of just 0.20. And its EBIT covers its interest charges 41.3 times. One could therefore say that he is no more threatened by his debt than an elephant is by a mouse. Even better, Halozyme Therapeutics increased its EBIT by 372% last year, which is an impressive improvement. If sustained, this growth will make debt even more manageable in years to come. There is no doubt that we learn the most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Halozyme Therapeutics’ ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

Finally, while the taxman may love accounting profits, lenders only accept cash. So the logical step is to look at what proportion of that EBIT is actual free cash flow. Over the past two years, Halozyme Therapeutics has recorded free cash flow of 67% of its EBIT, which is about normal, given that free cash flow excludes interest and taxes. This cold hard cash allows him to reduce his debt whenever he wants.

Our point of view

Halozyme Therapeutics’ interest coverage suggests she can manage her debt as easily as Cristiano Ronaldo could score a goal against an Under-14 keeper. And this is only the beginning of good news since its EBIT growth rate is also very encouraging. We believe that Halozyme Therapeutics is no more indebted to its lenders than birds are to birdwatchers. In our view, he has a healthy and happy record. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks reside on the balance sheet, far from it. For example, Halozyme Therapeutics has 3 warning signs (and 1 that makes us a little uneasy) we think you should know.

If, after all that, you’re more interested in a fast-growing company with a strong balance sheet, check out our list of cash-flowing growth stocks without further ado.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.