Fortress Biotech Inc. (NASDAQ:FBIO) clearly uses debt in its operations. But the real issue is whether the company’s debt makes it risky. Debt becomes a major issue when a business can’t quickly pay it off, either by raising money or through its own cash flow. In the end, if the corporation is unable to meet its legal obligations to repay debt, shareholders will be left with nothing.
Li Lu, an external fund manager backed by Berkshire Hathaway’s Charlie Munger, says bluntly, “The greatest investment risk is not market uncertainty, but whether you will experience a permanent loss of money.” So it seems that the smart money understands that debt – which is often associated with bankruptcies – is a critical factor to consider when determining how risky a business is.
Fortress Biotech had liabilities of US$48.0 million due within 12 months and US $83.9 million due beyond 12 months, according to its most recent balance sheet. It had cash of US $233.4 million and receivables of US $20.1 million due in the next 12 months to cover these obligations. As a result, it has US $121.6 million in liquid assets versus total liabilities.