Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Centessa Pharmaceuticals plc (NASDAQ:CNTA) makes use of debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Centessa Pharmaceuticals's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Centessa Pharmaceuticals had US$109.3m of debt, an increase on US$76.8m, over one year. However, its balance sheet shows it holds US$284.5m in cash, so it actually has US$175.3m net cash.

How Strong Is Centessa Pharmaceuticals' Balance Sheet?

We can see from the most recent balance sheet that Centessa Pharmaceuticals had liabilities of US$24.2m falling due within a year, and liabilities of US$117.4m due beyond that. Offsetting this, it had US$284.5m in cash and US$52.7m in receivables that were due within 12 months. So it can boast US$195.6m more liquid assets than total liabilities.

This short term liquidity is a sign that Centessa Pharmaceuticals could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Centessa Pharmaceuticals boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Centessa Pharmaceuticals can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

See our latest analysis for Centessa Pharmaceuticals

In the last year Centessa Pharmaceuticals wasn't profitable at an EBIT level, but managed to grow its revenue by 119%, to US$15m. So there's no doubt that shareholders are cheering for growth

So How Risky Is Centessa Pharmaceuticals?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Centessa Pharmaceuticals had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$162m of cash and made a loss of US$224m. However, it has net cash of US$175.3m, so it has a bit of time before it will need more capital. Importantly, Centessa Pharmaceuticals's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for Centessa Pharmaceuticals that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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.