Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Arcutis Biotherapeutics

How Much Debt Does Arcutis Biotherapeutics Carry?

The chart below, which you can click on for greater detail, shows that Arcutis Biotherapeutics had US$204.6m in debt in September 2024; about the same as the year before. However, it does have US$330.6m in cash offsetting this, leading to net cash of US$126.0m.

How Strong Is Arcutis Biotherapeutics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Arcutis Biotherapeutics had liabilities of US$172.4m due within 12 months and liabilities of US$108.3m due beyond that. Offsetting these obligations, it had cash of US$330.6m as well as receivables valued at US$60.1m due within 12 months. So it actually has US$110.0m more liquid assets than total liabilities.

This short term liquidity is a sign that Arcutis Biotherapeutics could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Arcutis Biotherapeutics 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 Arcutis Biotherapeutics 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.

In the last year Arcutis Biotherapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 183%, to US$139m. So there's no doubt that shareholders are cheering for growth

So How Risky Is Arcutis Biotherapeutics?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Arcutis Biotherapeutics had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$168m and booked a US$196m accounting loss. However, it has net cash of US$126.0m, so it has a bit of time before it will need more capital. Importantly, Arcutis Biotherapeutics's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 2 warning signs for Arcutis Biotherapeutics you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.